<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
EASTGROUP PROPERTIES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 6798 13-2711135
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION NO.) IDENTIFICATION NO.)
</TABLE>
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
(601) 354-3555
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID H. HOSTER II, PRESIDENT
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
(601) 354-3555
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C> <C>
JOSEPH P. KUBAREK, ESQ. JOSEPH L. JOHNSON III, ESQ. KENNETH A. HOXSIE, ESQ.
JAECKLE, FLEISCHMANN & MUGEL GOODWIN, PROCTER & HOAR HALE AND DORR
800 FLEET BANK BUILDING EXCHANGE PLACE 60 STATE STREET
12 FOUNTAIN PLAZA BOSTON, MASSACHUSETTS 02109-2881 BOSTON, MASSACHUSETTS 02109
BUFFALO, NEW YORK 14202 (617) 570-1000 (617) 526-6000
(716) 856-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger (the "Merger") of Copley Properties, Inc. ("Copley")
with and into EastGroup Properties ("EastGroup") pursuant to an Agreement and
Plan of Merger dated as of February 12, 1996 described in the enclosed Joint
Proxy Statement/ Prospectus.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
Shares of Beneficial Interest,
$1.00 par value per share........ 2,353,841 Shares $19.31 $45,448,331.25 $15,671.84
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<FN>
(1) Represents the estimated maximum number of shares of beneficial interest of
EastGroup to be issued to the stockholders of Copley in the Merger of Copley
with and into EastGroup.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) and based on the 14.875 average of the high
and low sales price per share of common stock of Copley on March 15, 1996 on
the American Stock Exchange, multiplied by 3,055,350 shares of Copley common
stock outstanding on such date and not owned by EastGroup. If the Merger is
consummated, a maximum of .7704 of a share of beneficial interest of
EastGroup will be issued for every one share of common stock of Copley.
</TABLE>
THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET PURSUANT TO RULE 404(a)
SHOWING THE LOCATION IN THE PROSPECTUS
OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
---------------------------------------- ------------------------------------------
<S> <C> <C> <C>
A. INFORMATION ABOUT THE
TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Outside front cover page.
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... AVAILABLE INFORMATION; INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE; TABLE OF
CONTENTS.
3. Summary Information, Risk Factors, Ratio
of Earnings to Fixed Charges and Other
Information............................. JOINT PROXY STATEMENT/PROSPECTUS SUMMARY;
RISK FACTORS.
4. Terms of the Transaction................ PROPOSAL 1 -- THE MERGER AGREEMENT;
COMPARISON OF SHAREHOLDERS RIGHTS;
DESCRIPTION OF CAPITAL STOCK OF EASTGROUP;
APPENDIX A.
5. Pro Forma Financial Information......... INDEX TO FINANCIAL STATEMENTS.
6. Material Contacts with the Company Being
Acquired................................ PROPOSAL 1 -- THE MERGER AGREE-
MENT -- Background of the Merger; PROPO-
SAL 1 -- THE MERGER AGREEMENT -- Copley
Directors' Reasons for Recommending the
Merger.
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... Not applicable.
8. Interests of Named Experts and
Counsel................................. Not applicable.
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. INDEMNIFICATION PROVISIONS.
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants............................. INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE; AVAILABLE
INFORMATION; INFORMATION CONCERNING
EASTGROUP; MARKET PRICES AND DIVIDENDS.
11. Incorporation of Certain Information by
Reference............................... INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE; INFORMATION CONCERNING
EASTGROUP
12. Information with Respect to S-2 or S-3
Registrants............................. Not applicable.
13. Incorporation of Certain Information by
Reference............................... Not applicable.
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
---------------------------------------- ------------------------------------------
<S> <C> <C> <C>
14. Information with Respect to Registrants
Other than S-3 or S-2 Registrants....... Not applicable.
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3
Companies............................... Not applicable.
16. Information with Respect to S-2 or S-3
Companies............................... INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE; AVAILABLE
INFORMATION; INFORMATION CONCERNING
COPLEY; MARKET PRICES AND DIVIDENDS.
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies......... Not applicable.
D. VOTING AND MANAGEMENT
INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited...... INTRODUCTION; VOTING AND PROXY
INFORMATION; PROPOSAL 1 -- THE MERGER
AGREEMENT -- Dissenters' Rights; PROPOSAL
1 -- THE MERGER AGREEMENT -- Interest of
Copley Management and EastGroup in the
Merger; PROPOSAL 1 -- THE MERGER
AGREEMENT -- Board of Trustees and
Management of EastGroup; PROPOSAL
2 -- ELECTION OF TRUSTEES (FOR EASTGROUP
SHAREHOLDERS ONLY); PROPOSAL 3 --
AMENDMENT TO EASTGROUP PROPERTIES 1994
MANAGEMENT INCENTIVE PLAN (FOR EASTGROUP
SHAREHOLDERS ONLY); PROPOSAL 4 -- AMEND-
MENT TO THE EASTGROUP DECLARATION TO
INCREASE THE NUMBER OF AUTHORIZED
EASTGROUP SHARES (FOR EASTGROUP SHARE-
HOLDERS ONLY); INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer................. Not applicable.
</TABLE>
iii
<PAGE> 4
EASTGROUP PROPERTIES
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
, 1996
Dear Shareholder:
You are cordially invited to the annual meeting (the "Meeting") of
shareholders of EastGroup Properties ("EastGroup"), to be held on ,
1996 at .
At the Meeting, you will be asked to vote on the merger (the "Merger") of
Copley Properties, Inc. ("Copley") with and into EastGroup as described in the
attached Joint Proxy Statement/Prospectus. The proposed Merger has been approved
by EastGroup's Board of Trustees, which believes the transaction to be in the
best interest of EastGroup and its shareholders and recommends a vote FOR its
approval. The reasons for this belief are set forth in "Proposal 1 -- The Merger
Agreement -- EastGroup Trustees' Reasons for Effecting the Merger" in the
accompanying Joint Proxy Statement/Prospectus. The investment banking firm of
PaineWebber Incorporated has issued its opinion to EastGroup, a copy of which is
attached as Appendix C to the Joint Proxy Statement/Prospectus, that, subject to
the considerations and limitations set forth in such opinion, the Merger is fair
to the shareholders of EastGroup from a financial point of view.
EastGroup shareholders will also be voting on the election of seven
trustees, an amendment to the EastGroup Properties 1994 Management Incentive
Plan (the "Plan") to increase the number of shares of beneficial interest, $1.00
par value per share, of EastGroup ("EastGroup Shares"), authorized under the
Plan upon certain private offerings or business combination transactions in
which EastGroup Shares are issued, and an amendment to EastGroup's Restated
Declaration of Trust, as amended, to increase the number of authorized EastGroup
Shares from 10,000,000 to 20,000,000.
The proposed transactions are very important to you as a shareholder.
Therefore, whether or not you plan to attend the meeting, I urge you to give
your immediate attention to the proposals. Please review the enclosed materials,
sign and date the enclosed proxy card and return it promptly in the enclosed
postage-paid envelope.
Very truly yours,
LELAND R. SPEED
Chairman of the Board of Trustees
<PAGE> 5
EASTGROUP PROPERTIES
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201-2195
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1996
To the Shareholders:
Notice is hereby given that the annual meeting of shareholders of EastGroup
Properties ("EastGroup") will be held at on
, 1996 at a.m., local time, for the following purposes:
(1) To consider and act on a proposal to approve the Agreement and
Plan of Merger dated as of February 12, 1996 between Copley Properties,
Inc. ("Copley") and EastGroup (the "Merger Agreement"), pursuant to which,
among other things, Copley will be merged with and into EastGroup (the
"Merger"). Pursuant to the Merger Agreement, each share of common stock,
$1.00 par value per share, of Copley ("Copley Share"), will be converted
into shares of beneficial interest, $1.00 par value per share, of EastGroup
("EastGroup Shares"), based upon a value per Copley Share of $15.60,
subject to adjustment in the event certain cash distributions are made to
Copley stockholders prior to the effective date of the Merger.
The value of EastGroup Shares for purposes of calculating the ratio at
which the Copley Shares will be converted into EastGroup Shares in the
Merger will be the average of the closing price of EastGroup Shares on the
New York Stock Exchange, Inc. (the "NYSE") on the 20 trading days
immediately preceding the fifth trading day prior to the effective date of
the Merger (the "EastGroup Stock Price"); however, the EastGroup Stock
Price will be deemed to equal (i) $20.25 if the average price of EastGroup
Shares calculated above is less than or equal to $20.25 or (ii) $23.00 if
the average price of EastGroup Shares is greater than or equal to $23.00.
Copley has the right, waivable by it, to terminate the Merger Agreement
without liability if the average closing price of EastGroup Shares on the
NYSE on the 20 trading days immediately preceding the fifth trading day
prior to (i) the date on which the Securities and Exchange Commission (the
"SEC") declares EastGroup's Registration Statement with respect to the
Merger effective or (ii) the date on which Copley's stockholders' meeting
with respect to the Merger is held, is equal to or less than $18.25.
The proposed Merger has been approved by EastGroup's Board of
Trustees, which believes the transaction to be in the best interest of
EastGroup and its shareholders and recommends a vote FOR its approval. The
reasons for this belief are set forth in "Proposal 1--The Merger
Agreement--EastGroup Trustees' Reasons for Effecting the Merger" in the
accompanying Joint Proxy Statement/Prospectus. The investment banking firm
of PaineWebber Incorporated has issued its opinion to EastGroup, a copy of
which is attached as Appendix C to the Joint Proxy Statement/Prospectus,
that, subject to the considerations and limitations set forth in such
opinion, the Merger is fair to the shareholders of EastGroup from a
financial point of view.
(2) To elect seven trustees of EastGroup.
(3) To amend the EastGroup Properties 1994 Management Incentive Plan
(the "Plan") to increase the number of EastGroup Shares authorized under
the Plan upon certain private offerings or business combination
transactions in which EastGroup Shares are issued.
(4) To amend EastGroup's Restated Declaration of Trust, as amended, to
increase the number of authorized EastGroup Shares from 10,000,000 to
20,000,000.
(5) To transact such other business as may properly come before the
meeting or any adjournment thereof.
<PAGE> 6
Only shareholders of record at the close of business on , 1996
are entitled to notice of and to vote at the meeting and any adjournment
thereof.
EastGroup shareholders will not have appraisal rights in connection with
the Merger.
By Order of the Board of Trustees
N. KEITH MCKEY
Executive Vice President, Chief
Financial Officer and Secretary
DATE: , 1996
THIS IS AN IMPORTANT MEETING. SHAREHOLDERS ARE URGED TO VOTE BY SIGNING, DATING
AND RETURNING THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO WHICH NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
<PAGE> 7
COPLEY PROPERTIES, INC.
399 BOYLSTON STREET, 13TH FLOOR
BOSTON, MASSACHUSETTS 02116
, 1996
Dear Stockholder:
A special meeting of stockholders of Copley Properties, Inc. ("Copley")
will be held on , 1996. The purpose of the meeting is to vote on a
merger (the "Merger") of Copley with and into EastGroup Properties ("EastGroup")
as described in the attached Joint Proxy Statement/Prospectus.
The proposed Merger has been approved by Copley's Board of Directors, which
believes the transaction to be in the best interest of Copley and its
stockholders and recommends a vote FOR its approval. The reasons for this belief
are set forth in "Proposal 1 -- The Merger Agreement -- Copley Directors'
Reasons for Recommending the Merger" in the accompanying Joint Proxy
Statement/Prospectus. The investment banking firm of Morgan Stanley & Co.
Incorporated has issued its opinion to Copley, a copy of which is attached as
Appendix B to the Joint Proxy Statement/Prospectus, that, subject to the
considerations set forth in such opinion, the consideration to be received by
Copley stockholders in the Merger is fair to the stockholders of Copley from a
financial point of view.
The proposed transaction is very important to you as a stockholder.
Therefore, whether or not you plan to attend the meeting, I urge you to give
your immediate attention to the proposal. Please review the enclosed materials,
sign and date the enclosed proxy card and return it promptly in the enclosed
postage-paid envelope.
Very truly yours,
JOSEPH W. O'CONNOR
President
<PAGE> 8
COPLEY PROPERTIES, INC.
399 BOYLSTON STREET, 13TH FLOOR
BOSTON, MASSACHUSETTS 02116
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1996
To the Stockolders of Copley Properties, Inc.:
Notice is hereby given that a special meeting of stockholders of Copley
Properties, Inc., a Delaware corporation ("Copley"), will be held at
, on , 1996 at a.m., local time, for
the following purpose:
1. To consider and act on a proposal to approve the merger (the "Merger")
of Copley with and into EastGroup Properties ("EastGroup") and the Agreement and
Plan of Merger dated as of February 12, 1996 between EastGroup and Copley (the
"Merger Agreement").
Pursuant to the Merger Agreement, each share of common stock, $1.00 par
value per share, of Copley ("Copley Share") will be converted into shares of
beneficial interest, $1.00 par value per share, of EastGroup ("EastGroup
Shares"), based upon a value per Copley Share of $15.60, subject to adjustment
in the event certain cash distributions are made to Copley stockholders prior to
the effective date of the Merger. The value of EastGroup Shares for purposes of
calculating the ratio at which the Copley Shares will be converted into
EastGroup Shares in the Merger will be the average of the closing price of
EastGroup Shares on the New York Stock Exchange, Inc. (the "NYSE") on the 20
trading days immediately preceding the fifth trading day prior to the effective
date of the Merger (the "EastGroup Stock Price"); however, the EastGroup Stock
Price will be deemed to equal (i) $20.25 if the average price of EastGroup
Shares calculated above is less than or equal to $20.25 or (ii) $23.00 if the
average price of EastGroup Shares is greater than or equal to $23.00. Copley has
the right, waivable by it, to terminate the Merger Agreement without liability
if the average closing price of EastGroup Shares on the NYSE on the 20 trading
days immediately preceding the fifth trading day prior to (i) the date on which
the Securities and Exchange Commission (the "SEC") declares EastGroup's
Registration Statement with respect to the Merger effective or (ii) the date on
which Copley's stockholders' meeting with respect to the Merger is held, is
equal to or less than $18.25. As a result of the transaction, EastGroup will
succeed to the operations and assets of Copley, the separate corporate existence
of Copley will cease and Copley will no longer be required to file reports under
the Securities Exchange Act of 1934, as amended. A copy of the Merger Agreement
is attached as Appendix A to the Joint Proxy Statement/Prospectus accompanying
this Notice.
2. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Holders of record of Copley Shares and Class A Common Stock, $1.00 par
value per share, at the close of business on , 1996 will be
entitled to notice of and to vote at the meeting and any adjournment thereof.
Copley stockholders are not entitled to appraisal rights in connection with
the Merger.
By Order of the Board of Directors
PETER P. TWINING
Secretary
DATE: , 1996
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. WHETHER OR
NOT YOU EXPECT TO ATTEND, HOWEVER, YOU ARE URGED TO VOTE BY SIGNING, DATING AND
RETURNING THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO WHICH NO POSTAGE NEED
BE AFFIXED IF MAILED IN THE UNITED STATES. PLEASE DO NOT SEND IN ANY
CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE> 9
JOINT PROXY STATEMENT
OF
COPLEY PROPERTIES, INC. AND EASTGROUP PROPERTIES
AND
PROSPECTUS
OF
EASTGROUP PROPERTIES
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Copley Properties, Inc. ("Copley") in connection with the
solicitation of proxies by the Board of Directors of Copley for use at the
special meeting of its stockholders to be held on , 1996, to consider
and vote on a proposal to approve and adopt the Agreement and Plan of Merger
dated February 12, 1996 between EastGroup Properties ("EastGroup") and Copley
(the "Merger Agreement"), a copy of which is attached hereto as Appendix A.
Pursuant to the Merger Agreement, (i) Copley will be merged with and into
EastGroup (the "Merger") and (ii) each share of common stock, $1.00 par value
per share, of Copley ("Copley Share") (other than Copley Shares owned by
EastGroup which will be cancelled in the Merger) will be converted into shares
of beneficial interest, $1.00 par value per share, of EastGroup ("EastGroup
Shares"), based upon a value per Copley Share of $15.60, subject to limitations
described below and subject to adjustment in the event certain cash
distributions are made to Copley stockholders prior to the effective date of the
Merger (the "Copley Share Value").
The value of EastGroup Shares for purposes of calculating the ratio at
which the Copley Shares will be converted into EastGroup Shares in the Merger
will be the average of the closing price of EastGroup Shares on the New York
Stock Exchange, Inc. (the "NYSE") on the 20 trading days immediately preceding
the fifth trading day prior to the effective date of the Merger (the "EastGroup
Stock Price"); however, the EastGroup Stock Price will be deemed to equal (i)
$20.25 if the average price of EastGroup Shares calculated above is less than or
equal to $20.25 or (ii) $23.00 if the average price of EastGroup Shares is
greater than or equal to $23.00. Copley has the right, waivable by it, to
terminate the Merger Agreement without liability if the average closing price of
EastGroup Shares on the NYSE on the 20 trading days immediately preceding the
fifth trading day prior to (i) the date on which the Securities and Exchange
Commission (the "SEC") declares EastGroup's Registration Statement with respect
to the Merger effective or (ii) the date on which Copley's stockholders' meeting
with respect to the Merger is held, is equal to or less than $18.25. As a result
of the Merger, the separate corporate existence of Copley will cease, Copley
will no longer be required to file reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and EastGroup will succeed to the
operations and assets of Copley.
This Joint Proxy Statement/Prospectus is also being furnished to the
shareholders of EastGroup in connection with the solicitation of proxies by the
Board of Trustees of EastGroup for use at its annual meeting of shareholders to
be held , 1996. The purposes of the meeting are to consider and vote on
proposals to (i) approve and adopt the Merger Agreement, (ii) elect seven
trustees, (iii) approve and adopt an amendment to EastGroup's 1994 Management
Incentive Plan (the "1994 Incentive Plan") to increase the number of EastGroup
Shares authorized under the 1994 Incentive Plan upon certain private offerings
or business combination transactions in which EastGroup Shares are issued, (iv)
approve and adopt an amendment to EastGroup's Restated Declaration of Trust, as
amended, to increase the number of EastGroup Shares authorized for issuance from
10,000,000 to 20,000,000, and (v) to transact any other business as may properly
come before the meeting or any adjournment thereof.
This document also constitutes a Prospectus of EastGroup covering the
EastGroup Shares to be issued to stockholders of Copley upon consummation of the
Merger. EastGroup Shares are traded on the NYSE under the symbol "EGP." On March
15, 1996, the closing price for EastGroup Shares as reported by the NYSE was
$22.625. EastGroup is a Maryland real estate investment trust ("REIT"), with its
principal executive offices located at 300 One Jackson Place, 188 East Capitol
Street, Jackson, Mississippi 39201-2195, telephone
<PAGE> 10
number (601) 354-3555. The principal executive offices of Copley are located at
399 Boylston Street, 13th Floor, Boston, Massachusetts 02116, and the telephone
number of Copley is (617) 578-1200.
All information contained in this Joint Proxy Statement/Prospectus with
respect to EastGroup has been provided by EastGroup. All information contained
in this Joint Proxy Statement/Prospectus with respect to Copley has been
provided by Copley.
SEE "RISK FACTORS" ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN EVALUATING THE MERGER.
------------------------
NEITHER THIS TRANSACTION NOR THE SHARES OF BENEFICIAL INTEREST OF EASTGROUP
HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE FAIRNESS OF THIS
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS
NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
Consummation of the Merger is subject to the affirmative approval of the
holders of at least two-thirds of the EastGroup Shares outstanding and entitled
to vote, the affirmative approval of the holders of at least a majority of the
Copley Shares outstanding and entitled to vote, and certain other conditions.
EastGroup owns 529,000 of the Copley Shares entitled to vote (14.76% of the
Copley Shares entitled to vote) and intends to vote these Copley Shares FOR the
Merger. The directors and officers of Copley own 51,339 Copley Shares (1.43% of
the outstanding Copley Shares), and have indicated that they will vote such
Copley Shares FOR the Merger. Certain officers of EastGroup and members of their
immediate families, namely Leland R. Speed, Chief Executive Officer of
EastGroup, Mr. Speed's wife and their children, David H. Hoster II, President of
EastGroup, and his wife, and N. Keith McKey, Executive Vice President of
EastGroup, and his wife, have entered into a Proxy Agreement with Copley
pursuant to which they have granted Copley a proxy to vote a total of 213,438
EastGroup Shares (5.03%) owned by them FOR the Merger. EastGroup's remaining
trustees and officers, who beneficially own 32,323 EastGroup Shares entitled to
vote at the meeting of the shareholders of EastGroup, have indicated that they
intend to vote FOR the Merger. In addition, The Parkway Company, of which Mr.
Speed is a director and officer, has indicated that it will vote the 90,475
EastGroup Shares which it owns (2.13% of the outstanding EastGroup Shares) FOR
the Merger.
The date of this Joint Proxy Statement/Prospectus is , 1996. This
Joint Proxy Statement/Prospectus is first being mailed to shareholders of
EastGroup and stockholders of Copley on or about , 1996.
ii
<PAGE> 11
AVAILABLE INFORMATION
EastGroup and Copley are subject to the informational requirements of the
Exchange Act and in accordance therewith file reports, proxy statements and
other information with the SEC. Such reports, proxy statements and other
information may be inspected at and, upon payment of the SEC's customary
charges, copies obtained from, the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy statements and
other information are also available for inspection and copying at prescribed
rates at the SEC's regional offices in New York, New York (Seven World Trade
Center, 13th Floor, New York, New York 10048), and in Chicago, Illinois (Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2511).
In addition, EastGroup Shares are traded on the NYSE under the symbol "EGP" and
similar information concerning EastGroup can be inspected and copied at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. Copley Shares
are traded on the American Stock Exchange, Inc. ("AMSE"), under the symbol "COP"
and similar information can be inspected and copied at the offices of the AMSE,
86 Trinity Place, New York, New York 10006.
EastGroup and Copley have filed with the SEC a Registration Statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to EastGroup Shares to be issued in
the Merger. This Joint Proxy Statement/Prospectus constitutes the Prospectus of
EastGroup filed as part of the Registration Statement. As permitted by the rules
and regulations of the SEC, this Joint Proxy Statement/Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits listed therein, which can be
inspected at the public reference facilities of the SEC noted above, and copies
of which can be obtained from the SEC at prescribed rates as indicated above.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EASTGROUP OR COPLEY. NEITHER THE
DELIVERY HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
FACTS HEREIN SET FORTH SINCE THE DATE HEREOF. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS
OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated into this Joint Proxy Statement/Prospectus by reference are
the documents listed below filed by EastGroup and Copley under the Exchange Act.
Copies of any such documents, other than exhibits to such documents, are
available without charge to each person to whom a copy of this Joint Proxy
Statement/Prospectus has been delivered upon written or oral request of such
person, in the case of documents relating to EastGroup, from EastGroup, 300 One
Jackson Place, 188 East Capitol Street, Jackson, Mississippi 39201-2195,
Attention: Chief Financial Officer, telephone number (601) 354-3555, and, in the
case of documents relating to Copley, from Copley, 399 Boylston Street, 13th
Floor, Boston, Massachusetts 02116, Attention: Chief Operating Officer,
telephone number (617) 578-1200. In order to insure timely delivery of the
documents, requests should be received by , 1996.
The following documents or portions thereof are hereby incorporated into
this Joint Proxy Statement/Prospectus by reference:
1. EastGroup's 1995 Annual Report to Shareholders (Commission file No.
1-7094).
2. EastGroup's Annual Report on Form 10-K for the year ended December 31,
1995 (Commission file No. 1-7094).
3. Copley's Annual Report on Form 10-K for the year ended December 31, 1995
(Commission file No. 1-8927).
4. Copley's Current Report on Form 8-K dated February 16, 1996 (Commission
file No. 1-8927).
5. Copley's Current Report on Form 8-K dated March 1, 1996 (Commission file
No. 1-8927).
6. Copley's Current Report on Form 8-K dated March 11, 1996 (Commission
file No. 1-8927).
7. The Agreement and Plan of Merger dated as of February 12, 1996 by and
between Copley and EastGroup (attached hereto as Appendix A).
All documents filed by EastGroup pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the meetings shall be deemed to be
incorporated by reference herein and to be a part hereof from the respective
dates of the filing thereof. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Joint Proxy Statement/Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
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TABLE OF CONTENTS
<TABLE>
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JOINT PROXY STATEMENT/PROSPECTUS SUMMARY............................................... 1
The Companies..................................................................... 1
Surviving Company................................................................. 1
EastGroup's Shareholders' Meeting; Record Date; Securities Entitled to Vote....... 2
Copley's Stockholders' Meeting; Record Date; Securities Entitled to Vote.......... 2
The Merger -- Terms of the Merger................................................. 3
Benefits to Copley Affiliates..................................................... 4
Required Votes for Approval of the Merger Agreement............................... 4
Reasons for the Merger; Recommendations of the Board of Directors of Copley and
the
Board of Trustees of EastGroup.................................................. 5
Opinions of Financial Advisors.................................................... 6
Material Federal Income Tax Consequences.......................................... 6
The Merger Agreement.............................................................. 7
Conditions to Closing............................................................. 9
Regulatory Approval............................................................... 9
Alternatives to the Merger........................................................ 9
Accounting Treatment.............................................................. 10
Certain Resale Restrictions....................................................... 10
New York Stock Exchange Listing................................................... 10
Dissenters' Rights................................................................ 10
Risk Factors...................................................................... 10
Market Prices..................................................................... 10
Dividends......................................................................... 11
Comparison of Shareholder Rights.................................................. 12
Summary Historical Financial Data................................................. 14
Unaudited Pro Forma Consolidated Selected Financial Data.......................... 16
Selected Comparative Per Share Data............................................... 16
RISK FACTORS........................................................................... 18
Merger Could Cause Acceleration of Copley Indebtedness............................ 18
Substantial Debt Obligations...................................................... 18
Stock Price Fluctuations.......................................................... 18
Shares Available for Future Sale Could Adversely Affect Price of EastGroup
Shares........................................................................... 19
Risks of Real Estate Ownership.................................................... 19
Tenant Defaults................................................................... 20
Americans with Disabilities Act................................................... 20
Risk of Catastrophic Loss......................................................... 20
Possible Environmental Liabilities................................................ 20
Dissenters' Rights................................................................ 21
Continuation of REIT Status....................................................... 21
Competition....................................................................... 22
Benefits to Copley Affiliates..................................................... 22
Certain Effects of the Merger..................................................... 22
Differences Between Rights of EastGroup Shareholders and Copley Stockholders;
Possible
Anti-Takeover Effect............................................................ 22
Substantial Expenses and Payments if Merger Fails to Occur........................ 23
INTRODUCTION........................................................................... 24
</TABLE>
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VOTING AND PROXY INFORMATION........................................................... 24
PROPOSAL 1 -- THE MERGER AGREEMENT..................................................... 26
Surviving Company................................................................. 26
General........................................................................... 29
Effective Time of the Merger...................................................... 29
Conversion Terms of the Merger.................................................... 29
Exchange of Copley Share Certificates............................................. 30
Conditions to the Merger.......................................................... 31
Representations and Warranties.................................................... 32
Certain Covenants................................................................. 32
Dividends......................................................................... 34
Termination....................................................................... 35
Termination Amount and Expenses................................................... 35
No Solicitation of Transactions................................................... 36
Indemnification................................................................... 37
Amendments........................................................................ 38
Background of the Merger.......................................................... 38
Copley Directors' Reasons for Recommending the Merger............................. 44
Opinion of the Financial Advisor of Copley........................................ 47
EastGroup Trustees' Reasons for Effecting the Merger.............................. 51
Fairness Opinion of EastGroup's Financial Advisor................................. 53
Operations Following the Merger................................................... 57
Material Federal Income Tax Consequences of the Merger............................ 57
Taxation of REITS................................................................. 58
Taxation of the Shareholders of a REIT............................................ 59
Accounting Treatment.............................................................. 60
Dissenters' Rights................................................................ 60
Restrictions on Resales of Securities............................................. 60
Board of Trustees and Management of Surviving Company............................. 61
Effects of the Merger............................................................. 61
New York Stock Exchange Listing................................................... 61
INFORMATION CONCERNING COPLEY.......................................................... 62
Business.......................................................................... 62
Properties owned 100% by Copley subsequent to the February Exchanges.............. 65
Properties in which Copley will no longer have an ownership interest after the
February Exchange................................................................ 66
Properties sold during 1995....................................................... 67
Property Data Summary at December 31, 1995........................................ 68
Property Third-Party Debt Summary at December 31, 1995............................ 69
Invested Capital Priorities at December 31, 1995.................................. 71
Competitive Market Conditions..................................................... 71
Percentage Leased and 10% Tenants................................................. 72
Lease Expirations................................................................. 73
Significant Properties............................................................ 74
Federal Tax Basis Information for Copley.......................................... 80
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 81
Liquidity and Capital Resources................................................... 81
</TABLE>
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Results of Operations............................................................. 81
1995 Results of Operations Compared to 1994....................................... 83
1994 Result of Operations Compared to 1993........................................ 84
Inflation......................................................................... 85
INFORMATION CONCERNING EASTGROUP....................................................... 85
Recent Developments............................................................... 85
MARKET PRICES AND DIVIDENDS............................................................ 86
EastGroup Shares.................................................................. 86
Copley Shares..................................................................... 86
COMPARISON OF SHAREHOLDER RIGHTS....................................................... 87
Limited Rights of Shareholders.................................................... 87
Amendment of Charter.............................................................. 88
Repurchase and Redemption of Shares; Restrictions on Transfer..................... 88
Payment of Dividends.............................................................. 88
Shareholder Approval of Certain Business Combination Transactions................. 89
Control Share Acquisitions........................................................ 89
Appraisal Rights.................................................................. 90
Rights Agreement.................................................................. 91
Cumulative Voting................................................................. 92
Classified Board.................................................................. 92
Change in Number of Directors or Trustees......................................... 93
Removal of Directors or Trustees.................................................. 93
Indemnification of Officers and Directors and Trustees............................ 93
Special Meetings of Shareholders.................................................. 94
Action by Shareholders Without a Meeting.......................................... 94
Liability of Shareholders and Others.............................................. 94
Dissolution....................................................................... 94
Inspection of Books and Records................................................... 95
DESCRIPTION OF CAPITAL STOCK OF EASTGROUP.............................................. 95
INDEMNIFICATION PROVISIONS............................................................. 95
PROPOSAL 2 -- ELECTION OF TRUSTEES (FOR EASTGROUP SHAREHOLDERS ONLY)................... 96
Security Ownership of Certain Beneficial Owners and Management.................... 96
Election of Trustees -- Nominees.................................................. 97
Other Directors and Trusteeships.................................................. 98
Committees and Meeting Data....................................................... 98
Executive Officers................................................................ 99
Executive Compensation............................................................ 99
Certain Transactions.............................................................. 103
PROPOSAL 3 -- AMENDMENT TO EASTGROUP PROPERTIES 1994 MANAGEMENT INCENTIVE PLAN (FOR
EASTGROUP SHAREHOLDERS ONLY)......................................................... 105
Summary of the 1994 Incentive Plan................................................ 105
Tax Information................................................................... 107
PROPOSAL 4 -- AMENDMENT TO THE EASTGROUP DECLARATION TO INCREASE THE NUMBER OF
AUTHORIZED EASTGROUP SHARES (FOR EASTGROUP SHAREHOLDERS ONLY)........................ 107
EXPERTS................................................................................ 108
LEGAL OPINIONS......................................................................... 108
REPORTS TO SHAREHOLDERS................................................................ 108
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OTHER MATTERS.......................................................................... 108
SHAREHOLDER PROPOSALS.................................................................. 109
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................................. F-1
APPENDIX A Agreement and Plan of Merger by and between EastGroup Properties and Copley
Properties, Inc. dated as of February 12, 1996
APPENDIX B Opinion of Morgan Stanley & Co. Incorporated dated as of February 12, 1996
APPENDIX C Opinion of PaineWebber Incorporated dated as of February 12, 1996
APPENDIX D EastGroup Properties 1994 Management Incentive Plan, as amended
APPENDIX E Proposed Amendment to EastGroup Properties Restated Declaration of Trust,
as amended
</TABLE>
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<PAGE> 17
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus and the Appendices hereto relating to
the proposed merger (the "Merger") of Copley Properties, Inc. ("Copley") with
and into EastGroup Properties ("EastGroup"), pursuant to which EastGroup will be
the surviving company (sometimes referred to herein as the "Surviving Company"),
and the separate corporate existence of Copley will cease. This summary does not
purport to contain all material information relating to the Merger and the
Agreement and Plan of Merger dated as of February 12, 1996 by and between Copley
and EastGroup (the "Merger Agreement"), and is qualified in its entirety by the
more detailed information and financial statements contained or incorporated by
reference in this Joint Proxy Statement/Prospectus. STOCKHOLDERS OF COPLEY AND
SHAREHOLDERS OF EASTGROUP SHOULD READ CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES ATTACHED HERETO IN THEIR ENTIRETY.
Unless the context indicates otherwise, all references to Copley and EastGroup
include their respective subsidiaries and affiliated partnerships.
THE COMPANIES
Copley. Copley is a Boston-based Delaware corporation which has qualified
under the Internal Revenue Code of 1986, as amended (the "Code"), as a real
estate investment trust ("REIT"). Copley acquires, develops, operates and owns
primarily industrial real estate. At March 15, 1996, Copley owned and operated,
either directly or partially through joint venture ownership structures, 11
properties totaling over 2.0 million square feet of net rentable area.
Industrial properties, including bulk distribution, research and development and
light industrial space, account for approximately 91% of the total net rentable
area in Copley's portfolio. Over 87% of the net rentable area in Copley's
portfolio is located in California and Arizona. Copley was originally organized
in 1985 as a Delaware corporation. Copley's principal executive offices are
located at 399 Boylston Street, 13th Floor, Boston, Massachusetts 02116. Its
telephone number is (617) 578-1200.
EastGroup. EastGroup is a REIT which is qualified under the Code, and
formed under the laws of the state of Maryland. EastGroup owns a portfolio of
income producing real estate properties, with a primary emphasis on industrial
properties and selected office buildings and garden apartment complexes in the
southeastern and southwestern United States. At March 15, 1996, EastGroup owned
or had an interest in twenty-one industrial facilities, three office buildings
and eight apartment complexes. EastGroup and LNH REIT, Inc. ("LNH") have also
entered into an Agreement and Plan of Merger (the "EastGroup-LNH Merger"), which
is described under "Information Concerning EastGroup." The Unaudited Pro Forma
Financial Statements set forth in this Joint Proxy Statement/Prospectus also
show the effect of the EastGroup-LNH Merger. For more information regarding
EastGroup, see the 1995 Annual Report to Shareholders of EastGroup that
accompanies this Joint Proxy Statement/Prospectus. EastGroup's offices are
located at 300 One Jackson Place, 188 East Capitol Street, Jackson, Mississippi
39201. Its telephone number is (601) 354-3555.
SURVIVING COMPANY
Pursuant to the Merger Agreement, at the time the Merger becomes effective
(the "Effective Time"), Copley will merge with and into EastGroup and the
separate corporate existence of Copley will cease. EastGroup will be the
Surviving Company and the former Copley stockholders will become EastGroup
shareholders with all of the rights and privileges attendant thereto. As a
result of the Merger, EastGroup will succeed to Copley's partnership interests
and its equity interests. Immediately following the Merger, CPI Holdings, Inc.,
a subsidiary of Copley, will remain in existence and will become a subsidiary of
EastGroup. The Surviving Company will have ownership interests in 32 industrial
and office properties in eight states with a total of more than 5,000,000 square
feet of leasable area. These industrial and office properties will be located
primarily in the Sunbelt area of the southern United States, with Copley's
properties allowing the Surviving Company to have a presence in Arizona and
California to complement EastGroup's investments which are primarily in Florida
and Texas.
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Following the Merger, management of EastGroup believes that the Surviving
Company will be perceived as a REIT concentrating in industrial properties and
selected office buildings in the Sunbelt region. The Merger allows the Surviving
Company to have a presence in California and Arizona, two markets that
management of EastGroup believes to be favorable for industrial and office
properties due to anticipated favorable economic conditions in these states in
the future.
The current executive officers and trustees of EastGroup will manage the
business and affairs of the Surviving Company following the consummation of the
Merger. For information concerning these persons, see "Proposal 2 -- Election of
Trustees (For EastGroup Shareholders Only)."
EASTGROUP'S SHAREHOLDERS' MEETING; RECORD DATE; SECURITIES ENTITLED TO VOTE
The annual meeting of the shareholders of EastGroup will be held on
, 1996 at a.m., local time, at
(the "EastGroup
Meeting"). The purposes of the EastGroup Meeting are to consider and vote upon
proposals to (i) approve and adopt the Merger Agreement, (ii) elect seven
trustees, (iii) approve and adopt an amendment to EastGroup's 1994 Management
Incentive Plan (the "1994 Incentive Plan") to increase the number of shares of
beneficial interest, $1.00 par value per share, of EastGroup ("EastGroup
Shares") authorized under the 1994 Incentive Plan upon certain business
combination transactions in which EastGroup Shares are issued, (iv) approve and
adopt an amendment to EastGroup's Restated Declaration of Trust, as amended (the
"EastGroup Declaration"), to increase the number of EastGroup Shares authorized
for issuance from 10,000,000 to 20,000,000, and (v) transact any other business
as may properly come before the EastGroup Meeting or any adjournment thereof.
The record date for the EastGroup Meeting is , 1996
(the "EastGroup Record Date"). As of such date, there were EastGroup Shares
outstanding and entitled to vote at the EastGroup Meeting. Holders of EastGroup
Shares are entitled to one vote per EastGroup Share on all matters except the
election of trustees. Shareholders of EastGroup are entitled to cumulative
voting in the election of trustees, entitling each EastGroup shareholder to as
many votes in the election of trustees as shall equal the number of EastGroup
Shares owned by that shareholder multiplied by the number of trustees to be
elected, and each EastGroup shareholder may cast all such votes for a single
candidate for trustee or may distribute them among two or more candidates as
that shareholder may determine.
Only EastGroup shareholders as of the EastGroup Record Date are entitled to
notice of and to vote at the EastGroup Meeting. EastGroup shareholders as of the
EastGroup Record Date may grant proxies by completing, dating, signing and
returning the proxy card accompanying this Joint Proxy Statement/Prospectus. All
EastGroup Shares represented by properly executed proxies will, unless proxies
have been previously revoked, be voted in accordance with the instructions
indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH EASTGROUP
SHARES WILL BE VOTED IN FAVOR OF THE MERGER AGREEMENT AND IN FAVOR OF ALL OTHER
PROPOSALS. Shareholders that have given a proxy may revoke it any time prior to
the EastGroup Meeting by giving written notice thereof to the Secretary of
EastGroup, by signing and returning a proxy card bearing a later date, or by
attending the EastGroup Meeting and voting in person.
THE BOARD OF TRUSTEES OF EASTGROUP HAS UNANIMOUSLY APPROVED THE MERGER AND
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT EASTGROUP SHAREHOLDERS VOTE
FOR APPROVAL OF THE MERGER AND THE MERGER AGREEMENT. SEE "PROPOSAL 1 -- THE
MERGER AGREEMENT -- BACKGROUND OF THE MERGER" AND "PROPOSAL 1 -- THE MERGER
AGREEMENT -- EASTGROUP TRUSTEES' REASONS FOR EFFECTING THE MERGER." THE BOARD OF
TRUSTEES OF EASTGROUP ALSO RECOMMENDS A VOTE FOR PROPOSALS 2, 3 AND 4.
COPLEY'S STOCKHOLDERS' MEETING; RECORD DATE; SECURITIES ENTITLED TO VOTE
The special meeting of the stockholders of Copley will be held on
, 1996 at a.m., local time, at (the "Copley Meeting"). The purpose
of the Copley Meeting is to consider and vote upon
2
<PAGE> 19
proposals (i) to approve and adopt the Merger and the Merger Agreement and (ii)
to transact any other business as may properly come before the Copley Meeting or
any adjournment thereof.
The record date for the Copley Meeting is , 1996 (the "Copley
Record Date"). As of such date, there were 3,584,350 shares of common stock,
$1.00 par value, of Copley ("Copley Shares") and one share of Class A common
stock, $1.00 par value, of Copley (the "Class A Share") outstanding and entitled
to vote at the Copley Meeting. Holders of Copley Shares and the Class A Share
shall vote together as a single class and are entitled to one vote per share.
Only Copley stockholders as of the Copley Record Date are entitled to
notice of and to vote at the Copley Meeting. Copley stockholders as of the
Copley Record Date may grant proxies by completing, dating, signing and
returning the proxy card accompanying this Joint Proxy Statement/Prospectus. All
Copley Shares and the Class A Share represented by properly executed proxies
will, unless proxies have been previously revoked, be voted in accordance with
the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED,
SUCH COPLEY SHARES WILL BE VOTED FOR THE MERGER AND THE MERGER AGREEMENT.
Stockholders that have given a proxy may revoke it any time prior to the Copley
Meeting by giving written notice thereof to the Secretary of Copley, by signing
and returning a proxy card bearing a later date, or by attending the Copley
Meeting, withdrawing the proxy in writing and voting in person.
THE BOARD OF DIRECTORS OF COPLEY HAS UNANIMOUSLY APPROVED THE MERGER AND
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT COPLEY STOCKHOLDERS VOTE
FOR APPROVAL OF THE MERGER AND THE MERGER AGREEMENT. SEE "PROPOSAL 1 -- THE
MERGER AGREEMENT -- BACKGROUND OF THE MERGER" AND "PROPOSAL 1 -- THE MERGER
AGREEMENT -- COPLEY DIRECTORS' REASONS FOR RECOMMENDING THE MERGER."
THE MERGER -- TERMS OF THE MERGER
The Board of Directors of Copley and the Board of Trustees of EastGroup
have approved the Merger and the Merger Agreement, a copy of which is attached
hereto as Appendix A. Pursuant to the Merger Agreement, upon fulfillment (or
waiver) of the conditions set forth therein, at the Effective Time (i) Copley
will be merged with and into EastGroup, with EastGroup being the surviving
company in the Merger, and (ii) each issued and outstanding Copley Share (other
than the Copley Shares owned by EastGroup which will be cancelled in the Merger)
will be converted into the right to receive EastGroup Shares based upon a value
per Copley Share of $15.60 (subject to certain limitations described below) (the
"Copley Share Value"). In the event Copley sells certain property pursuant to
the purchase option granted to Summer Hill, Ltd. (the "Summer Hill Option"),
Copley shall distribute the proceeds therefrom to its stockholders and the
Copley Share Value shall be reduced to approximately $15.30 per Copley Share
(based upon the quotient equal to $1,060,000 divided by 3,584,350 (the number of
Copley Shares outstanding as of March 14, 1996)). In the event Copley
distributes dividends to holders of Copley Shares in addition to Copley's
regular $0.27 per Copley Share quarterly dividend (or a pro rata portion thereof
in the quarter during which the Effective Time occurs), the Copley Share Value
shall be reduced by the per Copley Share amount of such dividend or distribution
payments. See "Proposal 1 -- The Merger Agreement -- Dividends."
The value of EastGroup Shares for purposes of calculating the ratio at
which the Copley Shares will be converted into EastGroup Shares in the Merger
will be the average of the closing price of EastGroup Shares on the New York
Stock Exchange, Inc. (the "NYSE") on the 20 trading days immediately preceding
the fifth trading day prior to the Effective Time (the "EastGroup Stock Price");
however, the EastGroup Stock Price will be deemed to equal (i) $20.25 if the
average price of EastGroup Shares calculated above is less than or equal to
$20.25 or (ii) $23.00 if the average price of EastGroup Shares is greater than
or equal to $23.00. Copley has the right, waivable by it, to terminate the
Merger Agreement without liability if the average closing price of EastGroup
Shares on the NYSE on the 20 trading days immediately preceding the fifth
trading day prior to (i) the date on which the Securities and Exchange
Commission (the "SEC") declares EastGroup's Registration Statement with respect
to the Merger effective or (ii) the date on which the Copley Meeting is
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<PAGE> 20
held, is equal to or less than $18.25. (The applicable percentage of EastGroup
Shares to be issued to Copley stockholders in connection with the Merger upon
such conversion will sometimes hereinafter be referred to as the "Exchange
Ratio.") The closing price for EastGroup Shares for the 20 trading days ended
March 15, 1996 was $22.625. The Exchange Ratio was the result of arms-length
negotiations between Copley and EastGroup.
The Merger is subject to several conditions including approval by the
stockholders of Copley and the shareholders of EastGroup and registration of the
EastGroup Shares to be issued in the Merger with the SEC.
No fractional EastGroup Shares will be issued in connection with the
Merger. In lieu thereof, a holder of a Copley Share otherwise entitled to a
fractional EastGroup Share will be paid an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying (i) the EastGroup Stock
Price by (ii) the fraction of an EastGroup Share to which such holder would
otherwise be entitled.
Based upon the number of Copley Shares and EastGroup Shares outstanding at
March 15, 1996, the former Copley stockholders (other than EastGroup) will hold,
immediately after the Merger (assuming no adjustments to the Copley Share
Value), (i) assuming an EastGroup Stock Price of $20.25, approximately 2,354,000
EastGroup Shares, representing approximately 35.7% of the aggregate number of
outstanding EastGroup Shares; and (ii) assuming an EastGroup Stock Price of
$23.00, approximately 2,072,000 EastGroup Shares representing approximately
32.8% of the aggregate number of outstanding EastGroup Shares.
BENEFITS TO COPLEY AFFILIATES
In considering the recommendation of the Board of Directors of Copley and
the Board of Trustees of EastGroup to approve the Merger and the Merger
Agreement, stockholders should be aware that Copley will owe its advisor, Copley
Real Estate Advisors, Inc. ("Copley Advisors"), a deferred advisory fee
estimated to be approximately $2,770,000 assuming a June 1996 Merger. The
payment of such fee will be triggered by the Merger. In connection with the
execution of the Merger Agreement, Copley Advisors has amended the terms of its
advisory agreement with Copley so that it will receive 95% of such deferred
advisory fee (estimated to be approximately $2,600,000) at the consummation of
the Merger. Two of Copley's directors at the time the Merger Agreement was
approved by the Copley Board, Joseph W. O'Connor and Steven E. Wheeler, and all
of Copley's officers are or were also officers of Copley Advisors and, as a
result of such affiliation, such directors and officers could potentially be
viewed as having conflicts of interest. Because of this potential conflict of
interest, the Board of Directors of Copley designated a special committee
comprised of directors who are not affiliated with Copley Advisors to negotiate
matters relating to the Advisory Agreement and certain other matters relating to
the potential sale of Copley. The special committee was represented by its own
independent counsel. See "Proposal 1 -- The Merger Agreement -- Background of
the Merger."
EastGroup has agreed to continue to provide the directors, officers,
employees, fiduciaries and agents of Copley and each of its subsidiaries with
all rights to indemnification existing under their respective charters and
bylaws in effect as of the date of the Merger Agreement with respect to matters
occurring at or prior to the Effective Time. EastGroup has also agreed to
purchase, at or prior to the Effective Time, liability insurance coverage for
Copley's directors and officers for a period of six years which will provide the
Copley directors and officers with $5,000,000 of aggregate coverage, provided,
however, that the cost of such policy shall not exceed $600,000.
The relationships described above may have resulted or may result in the
directors and officers of Copley having a conflict of interest with the
stockholders of Copley in the negotiation, proposal, recommendation and
consummation of the Merger. Copley believes that Copley's stockholders were not
adversely affected by these arrangements. See "Risk Factors -- Benefits to
Copley Affiliates."
REQUIRED VOTES FOR APPROVAL OF THE MERGER AGREEMENT
EastGroup. The proposal to approve and adopt the Merger Agreement must be
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding EastGroup Shares entitled to vote. As of the date hereof, the
trustees and officers of EastGroup and members of their immediate families
beneficially
4
<PAGE> 21
own 5.79% of the outstanding EastGroup Shares. EastGroup's officers and trustees
have indicated that they intend to vote all of the EastGroup Shares held by them
and Copley Shares held by EastGroup in favor of the Merger. Certain officers of
EastGroup and members of their immediate families, namely Leland R. Speed, Chief
Executive Officer of EastGroup, Mr. Speed's wife and their children, David H.
Hoster II, President of EastGroup, and his wife, and N. Keith McKey, Executive
Vice President of EastGroup, and his wife, have entered into a Proxy Agreement
(the "Proxy Agreement") with Copley pursuant to which they have granted Copley a
proxy to vote a total of 213,438 EastGroup Shares (5.03% of the outstanding
EastGroup Shares) owned by them FOR the Merger. See "Voting and Proxy
Information." In addition, The Parkway Company ("Parkway"), of which Mr. Speed
is a director and officer, has indicated that it will vote the 90,475 EastGroup
Shares which it owns (2.13% of the outstanding EastGroup Shares) FOR the Merger.
Copley. The proposal to approve and adopt the Merger Agreement must be
approved by the affirmative vote of the holders of at least a majority of the
outstanding Copley Shares entitled to vote. As of March 15, 1996, EastGroup owns
529,000 Copley Shares (14.76% of the outstanding Copley Shares) and intends to
vote its Copley Shares in favor of the Merger. As of the date hereof, Copley's
officers and directors own 51,339 Copley Shares (1.43% of the outstanding Copley
Shares) and have indicated that they will vote such Copley Shares FOR the
Merger. See "Voting and Proxy Information."
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF COPLEY
AND THE BOARD OF TRUSTEES OF EASTGROUP
Copley. The Board of Directors of Copley believes that the Merger is fair
to and in the best interests of Copley and its stockholders. THE COPLEY BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF COPLEY VOTE FOR THE MERGER AND THE
MERGER AGREEMENT. The primary factors that Copley's Board of Directors
considered in reaching the foregoing conclusions were: (i) the belief of the
Board of Directors of Copley that the Merger was the best offer reasonably
available for Copley's stockholders; (ii) the belief of the Board of Directors
of Copley that no feasible alternatives were available to Copley that were as
likely in the near term to provide significant market value appreciation, and
the belief that Copley, as a stand-alone entity, would likely experience
difficulty in accessing the capital markets on acceptable terms in the future;
(iii) the belief of the Board of Directors of Copley, based in part on the
analyses prepared by Morgan Stanley & Co. Incorporated ("Morgan Stanley"), that
the Merger will be accretive (i.e., will result in an incremental increase) to
the projected funds from operations ("FFO") per share and cash available for
distribution per share of the Surviving Company; (iv) the anticipated cost
savings and operating efficiencies available to the Surviving Company from the
Merger; (v) the terms of the Merger Agreement, including the Exchange Ratio;
(vi) the "stock-for-stock" structure of the Merger which will provide an
opportunity for Copley's stockholders to share in any future appreciation of the
Surviving Company and will enable Copley's stockholders to convert their Copley
Shares into EastGroup Shares on a tax-free basis; (vii) the size and
administrative structure of the Surviving Company, including the fact that the
Merger will provide an opportunity for Copley stockholders to become
shareholders in a larger REIT which is self-administered and which likely will
have better access to the capital markets; and (viii) the likelihood that Copley
stockholders will realize an increase in quarterly dividend income as
shareholders of the Surviving Company. In making its recommendation, the Copley
Board of Directors also considered the opinion, analyses and presentations of
Morgan Stanley, Copley's financial advisor, including its written opinion dated
February 12, 1996, to the effect that, as of the date of such opinion, and based
upon and subject to certain matters stated therein, the Exchange Ratio was fair,
from a financial point of view, to Copley's stockholders. See "Proposal 1 -- The
Merger Agreement -- Copley Directors' Reasons for Recommending the Merger" and
"Proposal 1 -- The Merger Agreement -- Opinion of the Financial Advisor of
Copley."
EastGroup. The Board of Trustees of EastGroup believes that the Merger is
fair to and in the best interests of EastGroup and its shareholders. THE
EASTGROUP BOARD OF TRUSTEES HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF EASTGROUP VOTE FOR THE
MERGER
5
<PAGE> 22
AND THE MERGER AGREEMENT. The primary factors that EastGroup's Board of Trustees
considered in reaching the foregoing conclusions were its belief that: (i) the
Merger will further EastGroup's strategy of becoming a REIT emphasizing
industrial properties and selected office buildings by significantly increasing
the number of industrial and office properties owned by the Surviving Company,
(ii) the Merger will be accretive to the projected FFO per share and cash
available for distribution per share of the Surviving Company in 1996 and 1997;
(iii) the Merger will improve the liquidity of the Surviving Company's shares of
beneficial interest, and make EastGroup Shares more attractive to certain
institutional investors in the future; (iv) the Merger will significantly
increase the size of the Surviving Company relative to the size of EastGroup;
and (v) the Merger will lead to ongoing operating synergies and additional costs
savings, initially estimated to be approximately between $848,000 and $904,000
per annum prior to the offset of costs associated with the Merger (which costs
are estimated to be approximately $3,400,000). In making its recommendation, the
Board of Trustees of EastGroup also considered the opinion, analyses and
presentations of PaineWebber Incorporated ("PaineWebber"), its financial
advisor, including its written opinion dated February 12, 1996 to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the Exchange Ratio was fair, from a financial point of
view, to EastGroup's shareholders. See "Proposal 1 -- The Merger
Agreement -- EastGroup Trustees' Reasons for Effecting the Merger" and "Proposal
1 -- The Merger Agreement -- Fairness Opinion of EastGroup's Financial Advisor."
For a discussion of the circumstances surrounding the Merger and the
reasons for the recommendations of the Board of Trustees of EastGroup and the
Board of Directors of Copley, see "Proposal 1 -- The Merger
Agreement -- Background of the Merger," "Proposal 1 -- The Merger
Agreement -- EastGroup Trustees' Reasons for Effecting the Merger," and
"Proposal 1 -- The Merger Agreement -- Copley Directors' Reasons for
Recommending the Merger."
OPINIONS OF FINANCIAL ADVISORS
EastGroup. On February 12, 1996, PaineWebber delivered its written opinion
to the Board of Trustees of EastGroup to the effect that, as of such date, the
Exchange Ratio was fair, from a financial point of view, to EastGroup
shareholders. PaineWebber has confirmed such opinion by delivery of a written
opinion dated as of the date of this Joint Proxy Statement/Prospectus. See
Appendix C for the full text of the PaineWebber opinion. The PaineWebber opinion
does not constitute a recommendation to any EastGroup shareholder as to how any
such shareholder should vote on the Merger. Additionally, the PaineWebber
opinion does not address the business decision of the Board of Trustees of
EastGroup to acquire Copley pursuant to the Merger. For a description of the
PaineWebber opinion, including the procedures followed, the matters considered
and the assumptions made by PaineWebber in arriving at its opinion, see
"Proposal 1 -- The Merger Agreement -- Fairness Opinion of EastGroup's Financial
Advisor."
Copley. Copley has retained Morgan Stanley to act as its financial advisor
in connection with the transactions contemplated by the Merger Agreement and to
assist Copley's Board of Directors in evaluating the financial terms of the
Merger. See "Proposal 1 -- The Merger Agreement -- Background of the Merger." On
February 11, 1996, Morgan Stanley rendered to Copley's Board of Directors an
oral opinion to the effect that as of the date of such opinion, the
consideration to be received by the holders of Copley Shares was fair from a
financial point of view to such holders. Morgan Stanley subsequently confirmed
its opinion by delivery of a written opinion dated February 12, 1996. The full
text of Morgan Stanley's written opinion dated February 12, 1996, which sets
forth the assumptions made, matters considered and limitations of the review
undertaken, is attached as Appendix B to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference. Holders of Copley Shares are urged to,
and should, read such opinion in its entirety. See "Proposal 1 -- The Merger
Agreement -- Opinion of the Financial Advisor of Copley."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Hale and Dorr has delivered its opinion to Copley that, on the basis of
facts, representations and assumptions set forth in such opinion, the Merger
will be treated for United States federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
Accordingly, (i) no gain or loss will be recognized by Copley as a result of the
Merger, and (ii) no gain or loss will be recognized
6
<PAGE> 23
by any stockholder of Copley who receives EastGroup Shares in exchange for
Copley Shares (except with respect to any cash received in lieu of a fractional
interest in EastGroup Shares). Jaeckle, Fleischmann & Mugel, counsel for
EastGroup, has delivered its opinion to EastGroup that, on the basis of facts,
representations and assumptions set forth in such opinion, the Merger will be
treated for United States federal income tax purposes as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code. Accordingly, no gain or loss
will be recognized by EastGroup as a result of the Merger. See "Proposal
1 -- The Merger Agreement -- Material Federal Income Tax Consequences of the
Merger."
If certain detailed conditions imposed by the REIT provisions of the Code
are met, entities such as Copley and EastGroup that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations generally are not taxed at the corporate level on their "real
estate investment trust taxable income" that is currently distributed to
shareholders. This treatment substantially eliminates the "double taxation" on
earnings (i.e., taxation at both the corporate and shareholder levels) that
generally results from the use of corporations. Prior to the consummation of the
Merger, Copley and EastGroup each has operated in a manner intended to allow it
to qualify as a REIT. EastGroup intends to operate following the Merger in a
manner so that EastGroup will continue to qualify as a REIT. If EastGroup fails
to qualify as a REIT in any taxable year, EastGroup will be subject to federal
income taxation as if it were a domestic corporation, and EastGroup could be
subject to potentially significant tax liabilities which could reduce or
eliminate cash available to distribute to shareholders. Unless entitled to
relief under certain Code provisions, EastGroup also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. Moreover, under certain circumstances, EastGroup's
qualification as a REIT following the Merger could depend on Copley's
qualification as a REIT for periods prior to the Merger, and in any event the
liabilities that EastGroup will assume in the Merger would include Copley's
liability for any unpaid taxes, including taxes resulting if Copley failed to
qualify as a REIT, for any period prior to the Merger. See "Proposal 1 -- The
Merger Agreement -- Taxation of REITS."
THE MERGER AGREEMENT
Effective Time of the Merger. In accordance with the Maryland General
Corporation Law (the "MGCL"), and the Maryland Real Estate Investment Trusts Law
(the "MD REIT Law"), the Merger will become effective upon the acceptance for
recording of the Articles of Merger by the State Department of Assessments and
Taxation of Maryland. Subject to the fulfillment (or waiver) of the other
conditions to the obligations of EastGroup and Copley to consummate the Merger,
it is currently expected that the Merger will be consummated as soon as
practicable following the approval by the shareholders of EastGroup and the
stockholders of Copley of the Merger and the Merger Agreement at the EastGroup
Meeting and the Copley Meeting, respectively. See "Proposal 1 -- The Merger
Agreement -- Effective Time of the Merger."
Exchange of Copley Share Certificates. Promptly after the Effective Time,
EastGroup shall cause its transfer agent, KeyCorp Shareholder Services, Inc.
(the "Exchange Agent"), to mail to each record holder, as of the Effective Time,
of an outstanding certificate or certificates which immediately prior to the
Effective Time represented Copley Shares (the "Copley Share Certificate(s)"), a
form of Letter of Transmittal and instructions for use in effecting the
surrender of the Copley Share Certificate and for receiving any payment for
fractional shares. Upon surrender to the Exchange Agent of a Copley Share
Certificate, together with such Letter of Transmittal duly executed, the holder
of such Copley Share Certificate shall be entitled to receive in exchange
therefor a certificate or certificates representing EastGroup Shares and cash in
lieu of fractional shares and such surrendered Copley Share Certificate shall
then be cancelled. Copley stockholders who purchased Copley Shares through
Copley's dividend reinvestment plan and who did not receive a Copley Share
Certificate in respect thereof will be entitled to receive in exchange therefor
a certificate or certificates representing EastGroup Shares and cash in lieu of
fractional shares upon surrender to the Exchange Agent of a duly executed Letter
of Transmittal. Stockholders of Copley who fail to deliver their Copley Share
Certificates and Letter of Transmittal to the Exchange Agent will not receive
their EastGroup Share certificates, nor any dividends with respect to such
EastGroup Shares, unless and until such Copley Share Certificates are forwarded
to the Exchange Agent. Upon the Exchange Agent's receipt of the Copley Share
Certificates and Letter of Transmittal, the Copley stockholder will receive all
unpaid dividends, if any, with
7
<PAGE> 24
respect to such EastGroup Shares, without interest. Stockholders who are unable
to locate their Copley Share Certificates may contact the Exchange Agent at the
address indicated in the Letter of Transmittal for assistance. Shareholders of
EastGroup will not need to exchange their EastGroup Share certificates. See
"Proposal 1 -- The Merger Agreement -- Exchange of Copley Share Certificates."
Conditions to the Merger. The respective obligations of EastGroup and
Copley to effect the Merger and the other transactions contemplated in the
Merger Agreement are subject to the fulfillment or waiver of several conditions
at or prior to the Effective Time including, among others: (i) the Merger and
the Merger Agreement shall have been approved by the requisite vote of the
stockholders of Copley and the shareholders of EastGroup; (ii) the waiting
period applicable to the consummation of the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if applicable,
shall have expired or been terminated; (iii) neither EastGroup nor Copley shall
be subject to any order, ruling or injunction of a court of competent
jurisdiction which prohibits the consummation of the transactions contemplated
by the Merger Agreement; (iv) the Registration Statement shall have been
declared effective by the SEC under the Securities Act, and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been initiated
or, to the knowledge of EastGroup or Copley, threatened by the SEC; (v)
EastGroup shall have obtained the approval for the listing of the EastGroup
Shares issuable in the Merger on the NYSE, subject to official notice of
issuance; and (vi) all consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board, other
regulatory body or third parties required to be made or obtained in connection
with the execution, delivery and performance of the Merger Agreement and the
ancillary agreements to the Merger Agreement shall have been obtained or made
except (a) for any consents or approvals which are required from any holders of
mortgages affecting any of Copley's properties, or (b) where the failure to
obtain or make any such consent, authorization, order, approval, filing or
registration would not have a Copley Material Adverse Effect (as defined below
in "Proposal 1 -- The Merger Agreement -- Conditions to the Merger") or an
EastGroup Material Adverse Effect (as defined below in "Proposal 1 -- The Merger
Agreement -- Conditions to the Merger"), as the case may be. See "Proposal 1 --
The Merger Agreement -- Conditions to the Merger."
Termination. The Merger Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after approval of the Merger
and the Merger Agreement by the stockholders of Copley and the shareholders of
EastGroup, in a number of circumstances, including, among others: (i) by the
mutual written consent of the Board of Directors of Copley and the Board of
Trustees of EastGroup; (ii) by either Copley or EastGroup if (a) the Merger
Agreement and the transactions contemplated thereby shall have failed to receive
the requisite vote for approval by the shareholders of EastGroup or stockholders
of Copley, or (b) the Merger shall not have been consummated on or before
September 1, 1996 (other than due to the failure of the party seeking to
terminate the Merger Agreement to perform its obligations under the Merger
Agreement required to be performed by it at or prior to the Effective Time);
(iii) by action of Copley if (a) the Board of Directors of Copley recommends to
Copley's stockholders approval or acceptance of an Acquisition Proposal (as
defined below in "Proposal 1 -- The Merger Agreement -- No Solicitation of
Transactions") by a person other than EastGroup, but only in the event that the
Board of Directors of Copley, after consultation with and based upon the advice
of either Goodwin, Procter & Hoar or Hale and Dorr, or another nationally
recognized law firm, has determined in good faith that such action is necessary
for the Board of Directors of Copley to comply with its fiduciary duties to its
stockholders under applicable law or (b) if the average closing sales prices of
EastGroup Shares on the NYSE on each of the twenty trading days immediately
preceding the fifth trading day prior to either (1) the date this Registration
Statement is declared effective by the SEC or (2) the date of the Copley
Meeting, is equal to or less than $18.25; or (iv) by action of EastGroup if the
Board of Directors of Copley shall have recommended that stockholders of Copley
accept or approve an Acquisition Proposal by a person other than EastGroup. See
"Proposal 1 -- The Merger Agreement -- Termination."
Termination Amount and Expenses. If (i) EastGroup terminates the Merger
Agreement because (a) the Board of Directors of Copley has recommended that
stockholders of Copley accept or approve an Acquisition Proposal by a person
other than EastGroup (or Copley or its Board of Directors has resolved to
8
<PAGE> 25
accept such Acquisition Proposal), or (b) any representation, warranty, covenant
or agreement on the part of Copley set forth in the Merger Agreement has been
willfully breached; or (ii) Copley terminates the Merger Agreement because the
Board of Directors of Copley, after consultation with and based upon the advice
of either Goodwin, Procter & Hoar or Hale and Dorr, or another nationally
recognized law firm, has determined in good faith that its fiduciary duties to
its stockholders under applicable law require it to recommend to its
stockholders approval or acceptance of an Acquisition Proposal by a person other
than EastGroup; then Copley will pay to EastGroup termination fees in cash equal
to the sum of $1,500,000 plus EastGroup's out-of-pocket costs and expenses in
connection with the Merger Agreement and the transactions contemplated thereby,
up to a maximum of $375,000.
If EastGroup terminates the Merger Agreement because (i) the Board of
Directors of Copley has failed to make, or has withdrawn, amended, modified or
changed its approval or recommendation of the Merger Agreement or any of the
transactions contemplated thereby; (ii) Copley has failed as soon as practicable
to mail this Joint Proxy Statement/Prospectus to its stockholders or to include
the recommendation of its Board of Directors of the Merger Agreement and the
transactions contemplated thereby in this Joint Proxy Statement/Prospectus; or
(iii) any representation, warranty, covenant or agreement on the part of Copley
set forth in the Merger Agreement has been breached or become untrue, as the
case may be, and is incapable of being satisfied by September 1, 1996 (except
for termination because of a willful breach by Copley in which case the previous
paragraph will apply), Copley will pay all of EastGroup's out-of-pocket costs
and expenses in connection with the Merger Agreement and the transactions
contemplated thereby, up to a maximum of $375,000. See "Proposal 1 -- The Merger
Agreement -- Termination Amount and Expenses."
CONDITIONS TO CLOSING
Consummation of the Merger is subject to a number of conditions, including
the approval of the Merger Agreement by the holders of two-thirds of the
outstanding EastGroup Shares and a majority of the outstanding Copley Shares,
and the continued accuracy of the representations and warranties of EastGroup
and Copley as of the Effective Time. The representations and warranties relate
to, among other things, the absence of any material adverse changes in the
business or assets of EastGroup or Copley. The Merger may also be abandoned at
any time prior to its consummation by the agreement of the Board of Trustees of
EastGroup and the Board of Directors of Copley. See "Proposal 1 -- The Merger
Agreement."
REGULATORY APPROVAL
EastGroup and Copley believe that the Merger may be consummated without
notification being given or certain information being furnished to the Federal
Trade Commission (the "FTC") or the Antitrust Division of the Department of
Justice (the "Antitrust Division") pursuant to the HSR Act, and that no waiting
period requirements under the HSR Act are applicable to the Merger. However,
there can be no assurance that the consummation of the Merger will not be
delayed by reason of the HSR Act. At any time before or after consummation of
the Merger, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of EastGroup or Copley. At any time before or
after the Effective Time, any state could take such action under its own
antitrust laws as it deems necessary or desirable. Such action could include
seeking to enjoin the consummation of the Merger or seeking divestiture of
Copley or assets of EastGroup or Copley by EastGroup. Private parties may also
seek to take legal action under antitrust laws under certain circumstances.
ALTERNATIVES TO THE MERGER
Copley. In the event the Merger is not consummated for any reason, Copley
intends to continue to pursue its business objectives of maximizing stockholder
value. In addition, Copley may seek another strategic combination or a sale, in
one transaction or a series of transactions, of substantially all of its assets.
The Copley Board of Directors believes there are no feasible alternatives to the
Merger available to Copley at the present time that are likely to result in
greater stockholder value.
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<PAGE> 26
EastGroup. In the event the Merger is not consummated for any reason,
EastGroup will continue to pursue its business objectives of (i) increasing its
size and total market capitalization in a manner which the Board of Trustees
believes is in the best interest of EastGroup shareholders; (ii) maximizing FFO,
cash available for distribution and distributions per EastGroup Share; (iii)
acquiring industrial and office properties whether by acquisitions of individual
properties or business combination transactions; and (iv) holding its properties
as long-term investments.
ACCOUNTING TREATMENT
EastGroup will account for the Merger as a "purchase" in accordance with
Accounting Principles Board Opinion No. 16. See "Proposal 1 -- The Merger
Agreement -- Accounting Treatment."
CERTAIN RESALE RESTRICTIONS
All EastGroup Shares received by Copley stockholders in the Merger will be
freely transferable, except that EastGroup Shares received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act of
1933, as amended (the "Securities Act")) of Copley at the time of the Copley
Meeting may be resold by them only in certain permitted circumstances. See
"Proposal 1 -- The Merger Agreement -- Restrictions on Resales of Securities."
NEW YORK STOCK EXCHANGE LISTING
It is a condition to EastGroup's and Copley's obligations to consummate the
Merger that, as of the Effective Time, EastGroup obtain the approval for the
listing of the EastGroup Shares issuable in the Merger on the NYSE, subject to
official notice of issuance. See "Proposal 1 -- The Merger Agreement -- New York
Stock Exchange Listing."
DISSENTERS' RIGHTS
EastGroup. Under the MGCL and the MD REIT Law, shareholders of EastGroup
are not entitled to dissenters' rights in connection with the Merger. See
"Proposal 1 -- The Merger Agreement -- Dissenters' Rights."
Copley. Under the Delaware General Corporation Law ("DGCL"), stockholders
of Copley are not entitled to dissenters' rights in connection with the Merger.
See "Proposal 1 -- The Merger Agreement -- Dissenters' Rights."
RISK FACTORS
In deciding whether to approve the Merger and the Merger Agreement, the
shareholders of EastGroup and the stockholders of Copley should consider, in
addition to the other information in this Joint Proxy Statement/Prospectus, the
matters discussed under "Risk Factors." Such matters include (i) possible
adverse consequences to the shareholders of the Surviving Company as a result of
the possible acceleration of certain Copley indebtedness and uncertainties with
respect to the ability of the Surviving Company to refinance such indebtedness;
(ii) the increase in the amount of total debt payable by the Surviving Company
to approximately $131,594,000 after the Merger as compared to $71,562,000 for
EastGroup as of December 31, 1995, which increases the Surviving Company's pro
forma ratio of debt to total market capitalization to approximately 48.2% after
the Merger as compared to 42.9% for EastGroup as of December 31, 1995; (iii)
possible adverse consequences to Copley stockholders associated with a decline
in the price of EastGroup Shares between the date of this Joint Proxy
Statement/Prospectus through the Effective Time; (iv) risks associated with a
possible reduction of the price of EastGroup Shares following the Effective
Time, due to future sales of the Surviving Company's shares or potential sales
of the Surviving Company's shares by current Copley stockholders; (v) possible
conflicts of interests due to the fact that certain directors and officers of
Copley are affiliated with Copley Advisors which will receive a deferred
advisory fee of approximately $2,600,000 upon consummation of the Merger; (vi)
certain differences between the rights of stockholders of Copley and
shareholders of EastGroup; and (vii) possible payment of a termination fee and
expenses by Copley to EastGroup.
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<PAGE> 27
MARKET PRICES
EastGroup Shares are traded on the NYSE under the symbol "EGP." Copley
Shares are traded on the American Stock Exchange (the "AMSE") under the symbol
"COP." The table below sets forth, for the calendar quarters indicated, the high
and low sales prices per East-Group Share reported by the NYSE and per Copley
Share reported by the AMSE and dividends for the EastGroup Shares and the Copley
Shares.
<TABLE>
<CAPTION>
EASTGROUP SHARES COPLEY SHARES
---------------------------------------- ----------------------------------------
PER SHARE PER SHARE
DECLARED DECLARED
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1994:
First Quarter.......... $ 21 1/8 $ 19 $ 0.43 $ 10 3/4 $ 9 1/4 $ 0.22
Second Quarter......... 20 7/8 18 1/4 0.43 10 3/8 9 5/8 0.22
Third Quarter.......... 19 7/8 18 3/8 0.43 10 5/8 9 3/4 0.25
Fourth Quarter......... 19 3/4 16 1/2 0.45 10 3/4 9 3/8 0.25
1995:
First Quarter.......... $ 19 5/8 $ 17 1/4 $ 0.45 $ 10 1/4 $ 9 5/8 $ 0.25
Second Quarter......... 20 18 3/8 0.45 11 1/2 911/16 0.27
Third Quarter.......... 20 3/4 19 0.47 12 10 7/8 0.27
Fourth Quarter......... 22 3/8 20 1/4 0.47 13 3/8 11 1/2 0.27
1996:
First Quarter (through
March 15, 1996 $ 23 3/8 $ 20 3/4 $ 0.47 $ 15 1/4 $ 12 5/8 $ 0.27
</TABLE>
The following table shows the sales prices of EastGroup Shares as reported
by the NYSE and Copley Shares as reported by the AMSE, (i) on February 12, 1996,
the last trading day preceding public announcement that Copley and EastGroup had
entered into the Merger Agreement; and (ii) March 15, 1996, the most recent
trading date prior to the date of this Joint Proxy Statement/Prospectus for
which prices were available.
<TABLE>
<CAPTION>
EASTGROUP COPLEY
SHARE(1) SHARE(1)
--------- --------
<S> <C> <C>
February 12, 1996....................................................... $21.625 $ 14.00
March 15, 1996.......................................................... $22.625 $ 14.875
</TABLE>
- ---------------
(1) Price per share as of a particular day reflects the last reported
transaction in the indicated shares on or before that day.
BECAUSE THE MARKET PRICE OF EASTGROUP SHARES IS SUBJECT TO FLUCTUATION, THE
MARKET VALUE OF THE EASTGROUP SHARES THAT HOLDERS OF COPLEY SHARES WILL RECEIVE
IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO AND FOLLOWING THE MERGER.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR EASTGROUP SHARES.
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<PAGE> 28
DIVIDENDS
EastGroup paid a quarterly dividend of $0.45 per EastGroup Share for the
last quarter of 1994 and the first and second quarter of 1995. EastGroup
increased the quarterly dividend to $0.47 per EastGroup Share for the third
quarter of 1995 and paid $0.47 for the fourth quarter of 1995. On February 24,
1996, the EastGroup Board of Trustees declared a dividend of $0.47 per EastGroup
Share payable on March 29, 1996 to shareholders of record on March 15, 1996.
Copley paid a quarterly dividend of $0.22 per Copley Share for the first and
second quarters of 1994, $0.25 per Copley Share for the third and last quarters
of 1994 and for the first quarter of 1995, and $0.27 for the second, third and
fourth quarters of 1995. See "Market Prices and Dividends" for more information
regarding historical market prices and dividends. The Merger Agreement provides
that Copley may declare, set aside and pay dividends of not more than $0.27 per
Copley Share for each full quarter prior to the Effective Time. Additionally, in
the event the Effective Time shall occur between contemplated dividend record
dates, Copley is permitted to distribute a dividend for the period commencing on
the most recent record date and ending on the Effective Time based upon the
$0.27 per Copley Share per quarter figure multiplied by the fraction the
numerator of which is the number of days from Copley's most recent dividend
record date through the Effective Time and the denominator of which is 90 (the
"Copley Partial Dividend"). See "Proposal 1 -- The Merger
Agreement -- Dividends." EastGroup also intends to declare and pay regularly
scheduled dividend distributions for each full calendar quarter prior to the
Merger.
Further distributions by EastGroup will be at the discretion of its Board
of Trustees and will depend on EastGroup's actual cash available for
distribution, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the Board of Trustees deems relevant. However, EastGroup currently
intends to continue to pay regular quarterly distributions of $0.47 per
EastGroup Share. Management believes that there will be sufficient cash
available to make such distributions. Assuming the Surviving Company continues
to make regular quarterly distributions at EastGroup's current rate of $0.47 per
EastGroup Share, each stockholder of Copley would be entitled to receive a
quarterly distribution equivalent to $0.34 per Copley Share (assuming an
EastGroup Share price of $21.50 and no adjustments to the Copley Share Value).
EastGroup anticipates that cash available for distribution will exceed
earnings and profits due to non-cash expenses, primarily depreciation and
amortization, to be incurred by EastGroup. Distributions by EastGroup to the
extent of its current or accumulated earnings and profits for federal income tax
purposes, other than capital gain dividends, will be taxable to shareholders as
ordinary dividend income. Any dividends designated by EastGroup as capital gain
dividends generally will give rise to capital gain for shareholders.
Distributions in excess of EastGroup's current or accumulated earnings and
profits will be treated as a non-taxable reduction of a shareholder's basis in
its EastGroup Shares to the extent thereof, and thereafter as capital gain.
Distributions treated as non-taxable reductions in basis will have the effect of
deferring taxation until the sale of a shareholder's EastGroup Shares or future
distributions in excess of the shareholder's basis in the EastGroup Shares.
In order to maintain its qualification as a REIT, EastGroup will be
required to make annual distributions to its shareholders in an amount equal to
at least 95% of its taxable income (excluding net capital gains). In the event
that cash available for distribution is insufficient to meet these distribution
requirements, EastGroup could be required to borrow the amount of the deficiency
or sell assets to obtain the cash necessary to make the distributions required
to retain REIT status.
EastGroup maintains a Distribution Reinvestment Plan pursuant to which
shareholders of record may elect to reinvest cash distributions to purchase
newly issued EastGroup Shares at the current market value without payment of
brokerage fees. EastGroup may suspend or amend such plan at any time. This Joint
Proxy Statement/Prospectus does not constitute an offer of any EastGroup Shares
that may be issued by EastGroup in connection with a distribution reinvestment
program, and such EastGroup Shares may only be purchased pursuant to a separate
prospectus contained in EastGroup's effective registration statement.
12
<PAGE> 29
COMPARISON OF SHAREHOLDER RIGHTS
The rights of stockholders of Copley are currently governed by the DGCL,
the Copley Restated Certificate of Incorporation, as amended (the "Copley
Certificate") and the Copley Bylaws, as amended (the "Copley Bylaws"). Upon
completion of the Merger, stockholders of Copley will become shareholders of
EastGroup and their rights as shareholders of EastGroup will be governed by the
MGCL, the MD REIT Law, the EastGroup Restated Declaration of Trust, as amended
(the "EastGroup Declaration") and the EastGroup Trustees Regulations, as amended
(the "EastGroup Trustees Regulations").
Certain differences between the rights of stockholders of Copley and the
rights of shareholders of EastGroup include the following: (i) the EastGroup
Declaration limits shareholders of EastGroup to take action only on the election
of trustees, the amendment of the EastGroup Declaration, the termination of
EastGroup and the calling of a shareholders meeting, whereas the Copley
Certificate contains no such limiting provisions; (ii) the affirmative vote of
two-thirds of the votes entitled to be cast is necessary to amend the EastGroup
Declaration, whereas the affirmative vote of a majority of the outstanding
Copley Shares entitled to vote is necessary to amend the Copley Certificate,
with the exception of certain provisions of the Copley Certificate which require
approval of the holders of 80 percent of the outstanding Copley Shares; (iii)
pursuant to the Copley Certificate, any transfer of Copley Shares that Copley's
Board of Directors determines would jeopardize Copley's REIT status shall be
void ab initio and the intended transferee of such Copley Shares shall be deemed
never to have had an interest therein, whereas the EastGroup Declaration
authorizes EastGroup's Board of Trustees, when they are of the good faith
opinion that the direct and indirect ownership of EastGroup Shares has or may
become concentrated to an extent which threatens EastGroup's REIT status, to
call for the redemption of such EastGroup Shares or any number of such EastGroup
Shares; (iv) the Copley Certificate requires the affirmative approval of a
majority of the outstanding Copley Shares entitled to vote to approve a merger
unless such business combination is with an interested shareholder in which case
the approval of eighty percent of the outstanding Copley Shares is required,
whereas EastGroup shareholders, pursuant to the MD REIT Law, must approve a
merger by the affirmative approval of two-thirds of all the votes entitled to be
cast and in the case of a merger with an interested shareholder, by the approval
of at least four-fifths of the votes entitled to be cast by the holders of
outstanding voting stock and two-thirds of the votes entitled to be cast by the
holders of voting stock other than voting stock held by the interested
shareholder or an affiliate or associate thereof; (v) the Copley Certificate
does not provide for cumulative voting in the election of Copley directors,
whereas the EastGroup Declaration provides for cumulative voting in the election
of EastGroup trustees; (vi) pursuant to the Copley Bylaws, a director may be
removed, with or without cause by the affirmative vote of the holders of a
majority of Copley Shares then entitled to vote at an election of directors,
whereas pursuant to the EastGroup Declaration, trustees of EastGroup may be
removed with or without cause by the affirmative vote of the holders of not less
than two-thirds of all the votes then outstanding; (vii) Copley is a party to a
Rights Agreement which gives Copley stockholders certain rights in the event a
person or group acquires beneficial ownership of 15% or more of the outstanding
Copley Shares or commences a tender or exchange offer that would result in a
person or group owning 30% or more of the outstanding Copley Shares, whereas
EastGroup is not a party to such an agreement; and (viii) pursuant to the Copley
Bylaws, special meetings of stockholders of Copley may be called by the Copley
Board of Directors, by a majority of independent directors or by the Chairman of
the Board of Directors, whereas the EastGroup Trustees Regulations provide that
special meetings of EastGroup shareholders may be called by the Managing Trustee
or by any two trustees or, upon the written request of shareholders holding not
less than 25% of the outstanding EastGroup Shares, by any officer or trustee.
See "Comparison of Shareholder Rights."
13
<PAGE> 30
SUMMARY HISTORICAL FINANCIAL DATA
Copley. The following table sets forth financial information for Copley on
a historical basis and should be read in conjunction with, and is qualified in
its entirety by, the historical financial statements and notes thereto of Copley
included elsewhere and incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment results.............. $ 4,797,501 $ 804,180 $ 615,552 $ (719,213) $ 882,425
Portfolio expenses.............. $(2,408,201) $(1,341,125) $ (926,534) $ (803,525) $ (878,728)
----------- ----------- --------- ----------- ---------
Net income (loss)............... $ 2,389,300 $ (536,945) $ (310,982) $(1,522,738) $ 3,697
----------- ----------- --------- ----------- ---------
Results Per Weighted Average
Share Net income (loss)....... $ 0.67 $ (0.15) $ (0.09) $ (0.42) $ 0.00
Cash from operations.......... $ 0.96 $ 1.48 $ 1.28 $ 1.09 $ 1.15
Dividends..................... $ 1.06 $ 0.94 $ 0.80 $ 0.80 $ 1.10
Balance Sheet
Total assets.................. $81,517,257 $99,384,812 $97,412,024 $53,470,974 $55,780,484
Total liabilities............. $42,451,311 $58,908,834 $53,029,872 $ 5,910,398 $ 3,833,188
Net book value per share...... $ 10.90 $ 11.29 $ 12.38 $ 13.27 $ 14.44
</TABLE>
14
<PAGE> 31
EastGroup. The following table sets forth financial information for
EastGroup on a historical basis and should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements and notes
thereto of EastGroup which are incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Income from real estate operations.... $ 28,386 23,194 13,771 11,079 9,877
Land rents............................ 217 398 856 979 1,271
Interest.............................. 1,036 1,054 1,174 1,305 1,946
Other................................. 625 249 287 332 36
-------- -------- -------- -------- --------
30,264 24,895 16,088 13,695 13,130
-------- -------- -------- -------- --------
Expenses
Operating expenses from real estate
operations......................... 11,575 9,741 6,159 5,271 4,643
Interest expense...................... 6,287 3,905 3,415 2,832 3,040
Depreciation and amortization......... 5,613 4,323 2,874 2,338 1,998
Minority interests in joint
ventures........................... 220 163 78 -- --
General and administrative expenses... 2,180 2,046 1,531 1,297 1,307
Stock appreciation rights and
incentive compensation expense..... -- (129) 320 357 64
Provision for (recovery of) possible
losses............................. -- -- (144) 1,675 --
-------- -------- -------- -------- --------
25,875 20,049 14,233 13,770 11,052
-------- -------- -------- -------- --------
Income (loss) before gains (losses) on
investments........................... 4,389 4,846 1,855 (75) 2,078
-------- -------- -------- -------- --------
Gains (losses) on investments
Real estate........................... 3,322 2,322 3,408 (3,598) 4,367
Real estate investment trust
securities......................... -- -- 1,152 -- (745)
-------- -------- -------- -------- --------
Net income (loss)....................... $ 7,711 7,168 6,415 (3,673) 5,700
======== ======== ======== ======== ========
PER SHARE DATA:
Net income (loss)..................... $ 1.82 1.74 2.61 (1.49) 2.28
Book value (at end of period)......... 19.59 19.46 19.83 19.14 22.09
Cash distributions declared........... 1.84 1.31 1.60 1.52 1.88
Cash distributions paid............... 1.84 1.74 1.55 1.52 2.00
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING........................... 4,226 4,114 2,460 2,459 2,503
OTHER DATA:
Funds from operations(1).............. $ 10,159 9,071 5,131 4,241 4,158
Cash flows provided by (used in):
Operating activities............... 9,746 8,448 5,276 4,381 4,599
Investing activities............... (5,721) (46,715) (19,073) (9,226) 5,772
Financing activities............... (4,300) 35,878 16,324 1,887 (7,689)
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate investments at cost....... $162,939 166,927 116,102 94,713 90,196
Real estate investments, net of
accumulated depreciation and
allowance for losses............... 143,733 151,039 101,621 81,908 81,394
Total assets.......................... 157,955 154,860 107,508 85,529 86,514
Mortgage, bond and bank loans
payable............................ 71,562 68,229 53,203 35,643 30,006
Total liabilities..................... 75,055 72,684 58,707 38,496 31,730
Total shareholders' equity............ 82,900 82,176 48,801 47,033 54,784
</TABLE>
- ---------------
(1) EastGroup generally considers FFO to be an appropriate supplemental measure
of the performance of an equity REIT because it is predicated on a cash flow
analysis, as opposed to a measure predicated on generally accepted
accounting principles, which gives effect to non-cash items such as
depreciation. FFO, as defined by the National Association of Real Estate
Investment Trusts and as followed by EastGroup, represents net income
(computed in accordance with generally accepted accounting principles),
exclud-
15
<PAGE> 32
ing gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships
and joint ventures are calculated to reflect FFO on the same basis. Since
the definition of FFO is a guideline, computation of FFO may vary from one
REIT to another. FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
should not be considered as an alternative to net income as an indicator of
EastGroup's operating performance or as an alternative to cash flow as a
measure of liquidity. In addition, FFO is not necessarily indicative of cash
available to fund cash needs.
UNAUDITED PRO FORMA CONSOLIDATED SELECTED FINANCIAL DATA
The selected pro forma financial data that appears below is based on
Copley's and EastGroup's historical financial data as adjusted to give effect to
the Merger and to the EastGroup-LNH Merger on the basis described in the notes
to the Pro Forma Consolidated Financial Statements (Unaudited). See "Information
Concerning EastGroup." This information is not necessarily indicative of the
results that actually would have occurred and should be read in conjunction with
the Pro Forma Financial Statements (Unaudited) included elsewhere in this Joint
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995 FOR
EASTGROUP,
LNH AND COPLEY(1)
-------------------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Unaudited Pro Forma Consolidated
Operating Data:
Net revenues...................................................... $ 47,424
Expenses.......................................................... 42,007
Income before gain on investments................................. 5,417
Net income........................................................ 5,417
Net income per share.............................................. 0.77
Weighted average number of shares of beneficial interest
outstanding..................................................... 7,074
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995 FOR
EASTGROUP, LNH AND COPLEY(1)
-------------------------------
(IN THOUSANDS)
<S> <C>
Unaudited Pro Forma Consolidated
Balance Sheet Data:
Total assets...................................................... $ 281,483
Total liabilities................................................. 137,808
Shareholders' equity.............................................. 143,675
</TABLE>
- ---------------
(1) EastGroup, LNH and Copley have a December 31 fiscal year.
SELECTED COMPARATIVE PER SHARE DATA
The following tables set forth certain information concerning EastGroup
Shares, shares of common stock, $0.50 par value per share, of LNH ("LNH
Shares"), and Copley Shares. Entries captioned "EastGroup pro forma
consolidated" is EastGroup's, LNH's and Copley's historical data combined and
adjusted to give effect to the Merger and the EastGroup-LNH Merger on the basis
described in the notes to the Pro Forma Consolidated Financial Statements
(Unaudited). Copley's equivalent pro forma consolidated per share data is
determined by multiplying the EastGroup pro forma consolidated data by 0.7256,
which is the number of EastGroup Shares which will be exchanged for one Copley
Share in the Merger (based on EastGroup's market price on February 13, 1996 of
$21.50 per share). LNH's equivalent pro forma consolidated per share data is
determined by multiplying the EastGroup pro forma consolidated data by .3746,
which is the number of EastGroup Shares to be exchanged for one LNH Share in the
EastGroup-LNH Merger (based on EastGroup's market price on December 6, 1995 of
$21.625 per share).
16
<PAGE> 33
The following data should be read in conjunction with the Pro Forma
Consolidated Financial Statements (Unaudited) included elsewhere in this Joint
Proxy Statement/Prospectus, EastGroup's Consolidated Financial Statements
incorporated by reference in this Joint Proxy Statement/Prospectus, Copley's
Financial Statements included elsewhere and incorporated by reference in this
Joint Proxy Statement/Prospectus and LNH's Financial Statements included
elsewhere and incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
FOR EASTGROUP, COPLEY AND LNH
-------------------------------
<S> <C>
Book value per share of beneficial interest:
EastGroup historical............................................ $ 19.59
EastGroup pro forma consolidated................................ 20.29
Book value per share of common stock:
Copley historical............................................... 10.90
Copley equivalent pro forma consolidated........................ 14.72
Book value per share of common stock:
LNH historical.................................................. 10.66
LNH equivalent pro forma consolidated........................... 7.60
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
EastGroup:
Historical net income per share of beneficial interest................... $1.82
Pro forma consolidated net income per share of beneficial
interest.............................................................. 0.77
Historical consolidated cash dividends declared per share of beneficial
interest.............................................................. 1.84
Copley:
Historical net income per share of common stock.......................... $0.67
Equivalent pro forma consolidated net income per share of common stock... 0.56
Historical cash dividends declared per share of common stock............. 1.06
Equivalent pro forma consolidated cash dividends declared per share of
common stock.......................................................... 1.34
LNH:
Historical net income per share of common stock.......................... $0.47
Equivalent pro forma consolidated net income per share of common stock... 0.29
Historical cash dividends declared per share of common stock............. 1.08
Equivalent pro forma consolidated cash dividends declared per share of
common stock.......................................................... 0.69
</TABLE>
17
<PAGE> 34
RISK FACTORS
In analyzing the Merger, stockholders of Copley and shareholders of
EastGroup should consider, among other factors, the following:
MERGER COULD CAUSE ACCELERATION OF COPLEY INDEBTEDNESS
The consummation of the Merger could cause all of the indebtedness
(approximately $60,000,000) of Copley to become due and payable at the Effective
Time. In addition, EastGroup and Copley believe that prepayment penalties or
yield maintenance charges in the amount of approximately $2,600,000 would be due
and payable in connection with certain of such Copley indebtedness. During the
period between the signing of the Merger Agreement and the Effective Time,
EastGroup and Copley intend to negotiate with Copley's present lenders to have
the present Copley indebtedness remain in place after the Merger. There can be
no assurance, however, that EastGroup and Copley will be successful in their
negotiations with Copley's lenders,
nor can EastGroup and Copley predict the charges that such lenders might impose
as a condition to transfer. In the event that some or all of the Copley
indebtedness must be repaid at the Effective Time, the Surviving Company will be
required to find alternative sources for replacement financing. There can be no
assurance that such replacement financing will be on terms and conditions as
favorable as the terms and conditions presently in effect with respect to the
Copley indebtedness.
SUBSTANTIAL DEBT OBLIGATIONS
The Surviving Company's pro forma debt obligations as of December 31, 1995,
will increase from approximately $71,562,000 for EastGroup as of December 31,
1995 to $131,594,000. The pro forma ratio of debt to total market capitalization
of the Surviving Company as of December 31, 1995, would be approximately 48.2%,
as compared to 42.9% for EastGroup as of December 31, 1995. This increase in the
Surviving Company's leverage and its pro forma ratio of debt to total market
capitalization could increase the risk of default under its indebtedness.
Failure to pay debt obligations when due could result in the Surviving Company
losing its interest in the properties collateralizing such obligations. Certain
of Copley's and EastGroup's credit agreements provide that a default with
respect to any other indebtedness of the respective company shall cause an event
of default under that credit agreement and accelerate the Surviving Company's
obligations thereunder.
EastGroup believes that the ratio of debt to total market capitalization is
an important factor to consider in evaluating a REIT's debt level because this
ratio is one indicator of a company's ability to borrow funds. EastGroup
believes that using the ratio of debt to book value of assets is not as reliable
an indicator of a REIT's debt level because the book value of a REIT's assets
indicate only the depreciated value of the REIT's
property without consideration of the market value of such assets at a
particular point in time. The use of the ratio of debt to total market
capitalization does have certain risks because the total market capitalization
of a company is more variable than book value because it is dependent upon the
current stock trading price of a company. Accordingly, there can be no assurance
that the use of the ratio debt to total market capitalization in evaluating the
Surviving Company's debt level will adequately protect it from being highly
leveraged.
The risks associated with the debt obligations of the Surviving Company may
adversely affect the market price of EastGroup Shares and may inhibit the
Surviving Company's ability to raise capital and issue equity in both the public
and private markets following the consummation of the Merger.
STOCK PRICE FLUCTUATIONS
The relative prices of EastGroup Shares and Copley Shares at the Effective
Time may vary significantly from the prices as of the date of the execution of
the Merger Agreement, the date of this Joint Proxy Statement/Prospectus or the
date on which the EastGroup Meeting and the Copley Meeting are held, due to the
changes in the business operations and prospects of Copley or EastGroup, market
assessments of the likelihood that the Merger will be consummated and the timing
thereof, general market and economic conditions and other factors such as the
market perception of REIT stocks and the investments in real estate of Copley
and EastGroup. There can be no assurance that the price of EastGroup Shares will
not decline
18
<PAGE> 35
between the date of this Joint Proxy Statement/Prospectus and the Effective
Time. A change in the price of EastGroup Shares will change the Exchange Ratio
as follows. If the EastGroup Stock Price is $23.00 or more, each Copley Share
will be converted into .678 of an EastGroup Share. If the EastGroup Stock Price
is between $20.25 and $23.00, the Exchange Ratio will be determined by dividing
$15.60 by the EastGroup Stock Price. If the EastGroup Stock Price is $20.25 or
less, the Exchange Ratio will be .770 of an EastGroup Share. In considering
whether to approve the Merger and the Merger Agreement, stockholders of Copley
and shareholders of EastGroup should consider the risks associated with a
potential change in the price of EastGroup Shares between the date of this Joint
Proxy Statement/Prospectus and the Effective Time.
SHARES AVAILABLE FOR FUTURE SALE COULD ADVERSELY AFFECT PRICE OF EASTGROUP
SHARES
There can be no assurance as to the trading volume or price of EastGroup
Shares after the Merger. Events outside the control of EastGroup and Copley
which would adversely affect the market value of their existing real estate and
other investments, as well as the market value of Copley Shares and EastGroup
Shares, may occur during the period from the date of this Joint Proxy
Statement/Prospectus to the date the Merger is consummated or thereafter. All of
the EastGroup Shares to be issued to Copley stockholders other than the
affiliates of Copley in connection with the Merger (approximately 2,180,000
EastGroup Shares assuming an EastGroup Stock Price of $21.50) will be freely
tradeable. Sales of a substantial number of EastGroup Shares by current Copley
stockholders following the consummation of the Merger, or the perception that
such sales could occur, could adversely affect the market price for EastGroup
Shares after the Merger.
RISKS OF REAL ESTATE OWNERSHIP
EastGroup's assets primarily consist of equity investments in various types
of real property. If the Merger is consummated, stockholders of Copley will
become shareholders of EastGroup, which will own all of the assets of Copley. As
a result, stockholders of Copley will be, as shareholders of EastGroup, subject
to the risks inherent in the ownership and management of real property owned by
both Copley and EastGroup. These risks include, among others: adverse changes in
general or local economic conditions; adverse changes in interest rates and in
the availability of permanent mortgage funds which may render the acquisition,
sale or refinancing of properties difficult or unattractive; existing law, rules
and regulations and judicial decisions regarding liability for a variety of
potential problems related to real estate generally; adverse changes in real
estate, zoning, environmental or land-use laws; increases in real property taxes
and federal or local economic or rent controls; other governmental rules;
increases in operating costs and the need for additional capital and tenant
improvements; the supply of and demand for properties; possible insolvencies and
other material defaults by tenants; overbuilding in certain markets; ability to
obtain or maintain full occupancy of properties or to provide for adequate
maintenance or insurance; the presence of hazardous waste materials; mechanics
liens resulting from construction; property related claims and litigation;
fiscal policies; and acts of God. The illiquidity of real estate investments
generally impairs the ability of real estate owners to respond quickly to
changed circumstances.
Additionally, a substantial percentage of the Surviving Company's
properties will be located in the Sunbelt region of the United States
(particularly the states of Arizona, California, Florida and Texas) and such
properties will consist predominantly of industrial and office properties. The
Surviving Company's performance therefore will be linked to economic conditions
in the Sunbelt and to the market for industrial and office space generally. To
the extent that these conditions impact the market rents for industrial and
office space, they could result in a reduction of net income, FFO and cash
available for distribution and thus affect the amount of distributions the
Surviving Company can make to its shareholders.
Certain significant expenditures associated with investments in real estate
(such as mortgage payments, real estate taxes, insurance and maintenance costs)
are generally not reduced when circumstances cause a reduction in rental
revenues from the property. In addition, real estate values and yields from
investments in properties may also be affected by such factors as conditions in
financial markets, environmental conditions and compliance with laws.
19
<PAGE> 36
TENANT DEFAULTS
A substantial part of the Surviving Company's income is expected to be
derived from rental income from real property. Consequently, the Surviving
Company's ability to make expected distributions to shareholders would be
adversely affected if a significant number of tenants failed to meet their lease
obligations. In the event of a default by a lessee, the Surviving Company may
experience delays in enforcing its rights as lessor and may incur substantial
costs in protecting its investment. At any time, a tenant may also seek
protection under the bankruptcy laws, which could result in rejection and
termination of such tenant's lease and thereby cause a reduction in the cash
available for distribution by the Surviving Company. If a tenant rejects its
lease, the Surviving Company's claim for breach of the lease would (absent
collateral securing the claim) be treated as a general unsecured claim. The
amount of the claim would be capped at the amount owed for unpaid pre-petition
lease payments unrelated to the rejection, plus the greater of one year's lease
payment or 15% of the remaining lease payments payable under the lease (but not
to exceed the amount of three years' lease payments).
AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990, as amended (the "ADA"),
all public accommodations are required to meet certain federal requirements
related to access and use by disabled persons. Existing industrial properties
generally are not deemed to be public accommodations and, hence, are exempt from
many of the provisions of the ADA. Compliance with the public accommodations
provisions of the ADA could require the removal of access barriers, and
noncompliance could result in the imposition of fines or awards of damages.
Additional legislation may impose further burdens or restrictions on owners with
respect to access by disabled persons. The ultimate amount of the cost of
compliance with the ADA or such legislation is not currently ascertainable, and,
while such costs are not expected to have a material effect on the Surviving
Company, such costs could be substantial.
RISK OF CATASTROPHIC LOSS
The Surviving Company will have obtained or will have caused tenants to
obtain, comprehensive liability, fire and extended coverage insurance with
respect to its properties, of the types and in the amounts customarily obtained
for similar properties. There are, however, certain types of losses (generally
of a catastrophic nature, such as earthquakes, floods and wars) that may be
either uninsurable or not economically insurable. Should such an uninsured loss
occur, the Surviving Company could lose both its invested capital and
anticipated profits relating to such property.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to use such property as collateral in its borrowings. All of the
properties of Copley and EastGroup have been subjected to environmental audits
by independent environmental consultants. With the exception of one Copley
property, commonly known and numbered as the Kingsview Industrial Center, 17120
South Kingsview Avenue, Carson, California ("Kingsview"), a portion of which is
used for purposes of operating an oil and gas well and pipeline, these
environmental audit reports have not revealed any potential significant
environmental liability, nor is management of Copley or EastGroup aware of any
environmental liability with respect to the properties that such management
believes would have a material adverse effect on the Surviving Company's
business, assets or results of operations. Preliminary environmental studies
performed at the Kingsview property indicated that oil and certain hazardous
materials have been released at Kingsview in connection with the oil and gas
operations formerly conducted at Kingsview by a party unrelated to Copley who
had an oil and gas lease with respect to the Kingsview property and adjacent
parcels. Pursuant to the oil and gas lease, the operator agreed to indemnify and
hold Copley, as successor to the lessor, harmless from any claims or demands for
injury to
20
<PAGE> 37
persons or property resulting from or in any way connected with its operations
under such oil and gas lease. Further analysis done with respect to
contamination at Kingsview found that such contamination has effected only
surface soil and management of Copley believes that the cost of remediation is
between $25,000 and $50,000. Management of Copley has informed the oil and gas
operators of the need for environmental remediation and they are presently
investigating the Kingsview property. No assurance can be given that existing
environmental studies with respect to any of the properties reveal all
environmental liabilities or that any prior owner of any such property did not
create any material environmental condition not known to Copley and EastGroup.
DISSENTERS' RIGHTS
Copley. Stockholders of Copley who vote against the Merger (or do not
vote) will be bound by the results of the vote if Copley's stockholders approve
the Merger. Copley's stockholders will not have appraisal rights in connection
with, or as a result of, the matters to be acted upon relating to the Merger at
the Copley Meeting. See "Proposal 1 -- The Merger Agreement -- Dissenters'
Rights."
EastGroup. Shareholders of EastGroup who vote against the Merger (or do
not vote) will be bound by the results of the vote if EastGroup's shareholders
approve the Merger. EastGroup's shareholders will not have appraisal rights in
connection with, or as a result of, the matters to be acted upon relating to the
Merger at the EastGroup Meeting. See "Proposal 1 -- The Merger
Agreement -- Dissenters' Rights."
CONTINUATION OF REIT STATUS
EastGroup and Copley are REITs. If the Merger is approved, the stockholders
of Copley will become shareholders of EastGroup and, consequently, will continue
to experience the tax benefits available to REITs. Continuation of these tax
benefits will depend on EastGroup continuing to meet the various REIT
qualification rules, which include: (i) maintaining ownership of specified
minimum levels of real estate related assets; (ii) generating specified minimum
levels of real estate related income; (iii) maintaining certain ownership
restrictions on EastGroup Shares; and (iv) distributing substantially all real
estate investment taxable income on an annual basis. Although management of
EastGroup believes that the consummation of the Merger should not affect
EastGroup's continuing ability to qualify as a REIT, no assurance can be given
that EastGroup will be able to continue to operate in a manner so as to qualify
or remain so qualified.
If EastGroup fails to qualify as a REIT, EastGroup will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates. In addition, unless entitled to relief under
certain statutory provisions, EastGroup will be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification is
lost. This treatment would reduce the net earnings of EastGroup available for
investment or distribution to shareholders because of the additional tax
liability to EastGroup for the year or years involved. In addition,
distributions would no longer be required to be made. To the extent that
distributions to shareholders had been made in anticipation of EastGroup's
qualifying as a REIT, EastGroup might be required to borrow funds or to
liquidate certain of its investments to pay the applicable tax.
Copley believes that, since 1986, it has operated so as to qualify as a
REIT under the Code. The failure of Copley to qualify as a REIT would have
consequences generally similar to the consequences of any failure by EastGroup
to qualify as a REIT, as described above. If Copley has failed to qualify as a
REIT in any year in which it elected so to qualify and consequently becomes
liable to pay taxes as a regular non-REIT corporation, the liabilities of Copley
that EastGroup will assume at the Effective Time will include such tax
liability. Copley's failure to qualify as a REIT also could disqualify EastGroup
as a REIT.
The failure to qualify as a REIT would have a material adverse effect on an
investment in EastGroup as the taxable income of EastGroup would be subject to
federal income taxation at corporate rates, and, therefore, the amount of cash
available for distribution to its shareholders would be reduced or eliminated.
See "Proposal 1 -- The Merger Agreement -- Taxation of REITs" and "Proposal
1 -- The Merger Agreement -- Taxation of the Shareholders of a REIT."
21
<PAGE> 38
COMPETITION
All of the properties owned by EastGroup and Copley are located in
developed areas. There are numerous other industrial and office properties and
real estate companies within the market area of each such property which will
compete with the Surviving Company for tenants and development and acquisition
opportunities. The number of competitive industrial and office properties and
real estate companies in such areas could have a material effect on (i) the
Surviving Company's ability to rent space at the properties and the amount of
rents currently charged and (ii) development and acquisition opportunities. The
Surviving Company will compete for tenants and acquisitions with others who may
have greater resources than the Surviving Company.
BENEFITS TO COPLEY AFFILIATES
In considering the recommendation of the Board of Directors of Copley and
the Board of Trustees of EastGroup to approve the Merger and the Merger
Agreement, stockholders should be aware that Copley will owe its advisor, Copley
Advisors, a deferred advisory fee estimated to be approximately $2,770,000
assuming a June 1996 Merger. The payment of such fee will be triggered by the
Merger. In connection with the execution of the Merger Agreement, Copley
Advisors has amended the terms of its advisory agreement with Copley so that it
will receive 95% of such deferred advisory fee (estimated to be approximately
$2,600,000) at the consummation of the Merger. Two of Copley's directors at the
time the Merger Agreement was approved by the Copley Board, Messrs. O'Connor and
Wheeler, and all of Copley's officers are or were also officers of Copley
Advisors and, as a result of such affiliation, such directors and officers could
potentially be viewed as having conflicts of interest. Because of this potential
conflict of interest, the Board of Directors of Copley designated a special
committee comprised of directors who are not affiliated with Copley Advisors to
negotiate matters relating to the Advisory Agreement and certain other matters
relating to the potential sale of Copley. The special committee was represented
by its own independent counsel. See "Proposal 1 -- The Merger
Agreement -- Background of the Merger." EastGroup has agreed to continue to
provide the directors, officers, employees, fiduciaries and agents of Copley and
each of its subsidiaries with all rights to indemnification existing under their
respective charters and bylaws in effect as of the date of the Merger Agreement
with respect to matters occurring at or prior to the Effective Time. EastGroup
has also agreed to purchase, at or prior to the Effective Time, liability
insurance coverage for Copley's directors and officers for a period of six years
which will provide the directors and officers with $5,000,000 of aggregate
coverage, provided, however, that the cost of such policy shall not exceed
$600,000.
The relationships described above may have resulted or may result in the
directors and officers of Copley having a conflict of interest with the
stockholders of Copley in the negotiation, proposal, recommendation and
consummation of the Merger. Copley believes that Copley's stockholders were not
adversely affected by these arrangements.
CERTAIN EFFECTS OF THE MERGER
If the Merger is approved, stockholders of Copley will become shareholders
of EastGroup. The stockholders of Copley other than EastGroup who currently
beneficially own approximately 85% of the outstanding Copley Shares will only
own approximately 31% of EastGroup Shares outstanding after the Merger (assuming
an EastGroup Stock Price of $21.50 and assuming no adjustments to the Copley
Share Value) and, accordingly, will have less voting power and less of a
percentage interest in Copley assets which will become assets of EastGroup by
reason of the Merger.
DIFFERENCES BETWEEN RIGHTS OF EASTGROUP SHAREHOLDERS AND COPLEY STOCKHOLDERS;
POSSIBLE ANTI-TAKEOVER EFFECT
The rights of stockholders of Copley are currently governed by the DGCL,
the Copley Certificate and the Copley Bylaws. Upon completion of the Merger,
stockholders of Copley will become shareholders of EastGroup and their rights as
shareholders of EastGroup will be governed by the MGCL, the MD REIT Law, the
EastGroup Declaration and the EastGroup Trustees Regulations.
Certain differences between the rights of stockholders of Copley and the
rights of shareholders of EastGroup include the following: (i) the EastGroup
Declaration limits EastGroup shareholders to take action
22
<PAGE> 39
on only matters involving the election of trustees, the amendment of the
EastGroup Declaration, the termination of EastGroup and the calling of special
meetings of shareholders, whereas the Copley Certificate does not contain such
limiting provisions; (ii) the affirmative vote of two-thirds of the votes
entitled to be cast are necessary to amend the EastGroup Declaration, whereas
the affirmative vote of a majority of the outstanding Copley Shares entitled to
vote are necessary to amend the Copley Certificate, with the exception of
certain provisions of the Copley Certificate which require the approval of the
holders of 80% of the outstanding Copley Shares; (iii) pursuant to the Copley
Certificate, any transfer of Copley Shares that Copley's Board of Directors
determines would jeopardize Copley's REIT status shall be void ab initio and the
intended transferee of such Copley Shares shall be deemed never to have had an
interest therein, whereas the EastGroup Declaration authorizes EastGroup's Board
of Trustees, when they are of the good faith opinion that the direct and
indirect ownership of EastGroup Shares has or may become concentrated to an
extent which threatens EastGroup's REIT status, to call for the redemption of
such EastGroup Shares or any number of such EastGroup Shares; (iv) the Copley
Certificate requires the affirmative approval of a majority of the outstanding
Copley Shares entitled to vote to approve a merger unless such business
combination is with an interested shareholder in which case the approval of
eighty percent of the outstanding Copley Shares is required, whereas EastGroup
shareholders, pursuant to the MD REIT Law, must approve a merger by the
affirmative approval of two-thirds of all the votes entitled to be cast and in
the case of a merger with an interested shareholder, by the approval of at least
four-fifths of the votes entitled to be cast by the holders of outstanding
voting stock and two-thirds of the votes entitled to be cast by the holders of
voting stock other than voting stock held by the interested shareholder or an
affiliate or associate thereof; (v) the Copley Certificate does not provide for
cumulative voting in the election of Copley directors, whereas the EastGroup
Declaration provides for cumulative voting in the election of EastGroup
trustees; (vi) pursuant to the Copley Bylaws, a director may be removed, with or
without cause by the affirmative vote of the holders of a majority of Copley
Shares then entitled to vote at an election of directors, whereas pursuant to
the EastGroup Declaration, trustees of EastGroup may be removed with or without
cause by the affirmative vote of the holders of not less than two-thirds of all
the votes then outstanding; (vii) Copley is a party to a Rights Agreement which
gives Copley stockholders certain rights in the event a person or group acquires
beneficial ownership of 15% or more of the outstanding Copley Shares or
commences a tender offer or exchange offer that would result in a person or
group owning 30% or more of the outstanding Copley Shares, whereas EastGroup is
not a party to such an agreement; and (viii) pursuant to the Copley Bylaws,
special meetings of stockholders of Copley may be called by the Copley Board of
Directors, by a majority of independent directors or by the Chairman of the
Board of Directors, whereas the EastGroup Trustees Regulations provide that
special meetings of EastGroup shareholders may be called by the Managing Trustee
or by any two trustees or, upon the written request of shareholders holding not
less than 25% of the outstanding EastGroup Shares, by any officer or trustee.
See "Comparison of Shareholder Rights."
Certain of the above provisions (i.e., the requirement of a two-thirds vote
to approve a merger and the request that holders of at least 25% of the voting
shares are required to call a special meeting, and the MGCL provision that
regulates business combinations with holders of 10% or more of the voting shares
of a Maryland corporation or REIT) may have an anti-takeover effect with respect
to the Surviving Company, by making it difficult for a third party to acquire
control of the Surviving Company without the consent of its Board of Trustees.
See "Comparison of Shareholder Rights."
SUBSTANTIAL EXPENSES AND PAYMENTS IF MERGER FAILS TO OCCUR
Copley may have to pay EastGroup a termination fee and expenses if the
Merger Agreement were to be terminated under certain circumstances or Copley
were to enter into an acquisition agreement with a third party under certain
circumstances. Copley would be required to pay EastGroup a termination fee of
$1,500,000 plus reimbursement of EastGroup's out-of-pocket expenses up to
$375,000. If the Merger Agreement is terminated in certain other circumstances,
Copley will be required to reimburse EastGroup for its out-of-pocket expenses up
to $375,000. See "Proposal 1 -- The Merger Agreement -- Termination Amount and
Expenses."
23
<PAGE> 40
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Copley in connection with the solicitation of proxies by the
Board of Directors of Copley for use at the Copley Meeting, which will be held
on , 1996, at , local time, at , and
at all adjournments and postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to the
shareholders of EastGroup in connection with the solicitation of proxies by the
Board of Trustees of EastGroup for use at the EastGroup Meeting, which will be
held on , 1996, at , local time, at
, and at all adjournments and postponements thereof.
As set forth more fully below, at the Copley Meeting and at the EastGroup
Meeting, the holders of Copley Shares and EastGroup Shares, respectively, will
be asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement. A copy of the Merger Agreement is attached as Appendix A to this
Joint Proxy Statement/Prospectus, and is hereby incorporated by this reference
into this Joint Proxy Statement/Prospectus. Upon satisfaction of certain
conditions set forth therein, the Merger Agreement provides for, among other
things, (i) the merger of Copley with and into EastGroup; (ii) the conversion of
each Copley Share outstanding (other than Copley Shares owned by EastGroup which
will be cancelled in the Merger) into the right to receive Eastgroup Shares
based upon a value per Copley Share of $15.60 (subject to certain limitations);
and (iii) Copley's ceasing to exist as a separate legal entity.
Additionally, EastGroup shareholders will be asked to consider and vote on
proposals to (i) elect seven trustees; (ii) amend EastGroup's 1994 Incentive
Plan to increase the number of EastGroup Shares authorized under the 1994
Incentive Plan upon certain business combination transactions in which EastGroup
Shares are issued; and (iii) amend the EastGroup Declaration to increase the
number of authorized EastGroup Shares from 10,000,000 to 20,000,000.
VOTING AND PROXY INFORMATION
Copley Meeting. The Board of Directors of Copley has fixed the close of
business on , 1996 as the Copley Record Date. Only holders of Copley
Shares and the Class A Share at the close of business on the Copley Record Date
will be entitled to notice of and to vote at the Copley Meeting. At the close of
business on the Copley Record Date, there were outstanding 3,584,350 Copley
Shares and one Class A Share, the only outstanding securities of Copley entitled
to vote at the Copley Meeting. Approval of the Merger will require the
affirmative vote of the holders of at least a majority of the outstanding Copley
Shares and the Class A Share. Each holder of Copley Shares and the Class A Share
will be entitled to one vote per Copley Share and Class A Share.
The accompanying proxy is solicited on behalf of the Board of Directors of
Copley and is revocable at any time before it is exercised. A proxy may be
revoked by written notice of revocation or by a later-dated proxy, in either
case delivered to the Secretary of Copley. Attendance at the Copley Meeting will
not automatically revoke a proxy, but a stockholder in attendance may request a
ballot, withdraw a prior granted proxy in writing and vote in person.
All outstanding Copley Shares and the Class A Share represented by properly
executed and unrevoked proxies received in the accompanying form in time for the
Copley Meeting will be voted. Stockholders may (i) vote "FOR" approval of the
Merger Agreement; (ii) vote "AGAINST" approval of the Merger Agreement; or (iii)
"ABSTAIN" from voting on the Merger Agreement. A vote to abstain from voting on
the Merger Agreement (as well as a failure to vote at all) would have the effect
of a vote against the Merger Agreement. Copley Shares and the Class A Share will
be voted as instructed in the accompanying proxy. IF NO INSTRUCTIONS ARE GIVEN,
THE COPLEY SHARES AND THE CLASS A SHARE WILL BE VOTED FOR APPROVAL OF THE MERGER
AGREEMENT.
A proxy submitted by a stockholder may indicate that all or a portion of
the Copley Shares represented by such proxy are being voted by such stockholder.
This could occur, for example, when a broker is not permitted
24
<PAGE> 41
to vote shares held in street name in the absence of instructions from the
beneficial owner of the shares (a "broker non-vote"). Broker non-votes will be
counted in determining whether a quorum is present at the Copley Meeting, but
such shares will not be counted as having voted for or against the Merger
Agreement and will have the effect of having been voted against the Merger
Agreement, as approval of the Merger Agreement will require the affirmative vote
of a majority of the outstanding Copley Shares and the Class A Share. The
holders of a majority of the Copley Shares and the Class A Share issued and
outstanding and entitled to vote at the Copley Meeting, present in person or
represented by proxy, shall constitute a quorum at the Copley Meeting.
The following table sets forth information concerning ownership of Copley
Shares by each person known to Copley to be the beneficial owner of more than
five percent of the outstanding Copley Shares based on public filings with the
SEC and the stock ownership of all directors and officers as a group, both as of
March 12, 1996.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1)
- ---------------------------------------------------------- -------------------- -----------
<S> <C> <C>
EastGroup(2).............................................. 529,000 14.76%
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
Mentor Partners, L.P.(3).................................. 251,900 7.03%
500 Park Avenue
New York, New York 10022
All directors and officers as a group..................... 51,339(4) 1.43%(4)
</TABLE>
- ---------------
(1) Based on the number of Copley Shares outstanding as of March 13, 1996 which
was 3,584,350.
(2) Based upon an amended Schedule 13D filed with the SEC.
(3) Based upon an amended Schedule 13D filed with the SEC.
(4) Includes 7,500 Copley Shares and one share of Class A Common Stock owned by
Copley Advisors, with which some of Copley's directors and all of its
officers are affiliated. Also includes 2,400 Copley Shares owned by a
charitable trust of which a director of Copley is a trustee, as to which he
disclaims beneficial ownership.
EastGroup Meeting. The Board of Trustees of EastGroup has fixed the close
of business on , 1996 as the EastGroup Record Date. Only holders of
EastGroup Shares at the close of business on the EastGroup Record Date will be
entitled to receive notice of and to vote at the EastGroup Meeting. At the close
of business on the EastGroup Record Date, there were outstanding
EastGroup Shares, the only outstanding securities of EastGroup entitled to vote
at the EastGroup Meeting.
The accompanying proxy is solicited on behalf of the Board of Trustees of
EastGroup and is revocable at any time before it is exercised. A proxy may be
revoked by written notice of revocation or by a later dated proxy, in either
case delivered to the Secretary of EastGroup. Attendance at the EastGroup
Meeting will not automatically revoke a proxy, but a shareholder in attendance
may request a ballot and vote in person, thereby revoking a prior granted proxy.
All outstanding EastGroup Shares represented by properly executed and
unrevoked proxies received in the accompanying form in time for the EastGroup
Meeting will be voted. With respect to voting for trustees, shareholders may
vote "FOR" the slate of trustees set forth in this Joint Proxy
Statement/Prospectus, "WITHHOLD AUTHORITY" with respect to all persons on the
slate, or vote "FOR" the slate and withhold authority with respect to certain
persons set forth on the slate. With respect to the remaining proposals
shareholders may (i) vote "FOR"; (ii) vote "AGAINST"; or (iii) "ABSTAIN" from
voting on each of the proposals considered at the EastGroup Meeting. A vote to
abstain from voting on any of the proposals (as well as a failure to vote at
all) would have the effect of a vote against such proposal. EastGroup Shares
will be voted as instructed in the accompanying proxy. IF NO INSTRUCTIONS ARE
GIVEN, THE EASTGROUP SHARES WILL BE VOTED FOR APPROVAL OF THE PROPOSALS. The
holders of
25
<PAGE> 42
EastGroup Shares are entitled to cumulative voting in the election of trustees.
Each shareholder is entitled to as many votes in the election of trustees as
shall equal the number of EastGroup Shares owned by that shareholder multiplied
by the number of trustees to be elected, and each shareholder may cast all such
votes for a single candidate for trustee or may distribute them among two or
more candidates as that shareholder may determine. In the case of the election
of trustees, the persons named in the accompanying form of proxy reserve the
right to cumulate their votes and distribute them among nominees for trustees in
their discretion so as to elect as many of the nominees as possible. Approval of
the Merger Agreement will require the affirmative vote of the holders of at
least two-thirds of the outstanding EastGroup Shares. Similarly, approval of the
Declaration Amendment requires the affirmative approval of the holders of
two-thirds of the outstanding EastGroup Shares. Approval of the amendment to the
1994 Incentive Plan and will require the affirmative approval of the holders of
a majority of the EastGroup Shares present and voting at the EastGroup Meeting.
A proxy submitted by a shareholder may indicate that all or a portion of
the EastGroup Shares represented by such proxy are not being voted by such
shareholder. This could occur, for example, when a broker is not permitted to
vote shares held in street name in the absence of instructions from the
beneficial owner of the shares (a "broker non-vote"). Broker non-votes will be
counted in determining whether a quorum is present at the EastGroup Meeting, but
such shares will not be counted as having voted for or against the proposals and
will have the effect of having been voted against the Merger Agreement and the
Declaration Amendment, as approval of the Merger Agreement and the Declaration
Amendment will each require the affirmative vote of two-thirds of the
outstanding EastGroup Shares.
There is no person known to EastGroup to be the beneficial owner of more
than five percent of the outstanding EastGroup Shares based on public filings
with the SEC as of the EastGroup Record Date, except for Copley, which is deemed
to beneficially own 213,438 EastGroup Shares (5.03% of the outstanding EastGroup
Shares) as a result of proxies granted to Copley pursuant to the Proxy
Agreement. The Proxy Agreement was executed contemporaneously with, and in
contemplation of, the Merger Agreement. Pursuant to the Proxy Agreement, certain
officers of EastGroup and members of their immediate families, namely Leland R.
Speed, Chief Executive Officer of EastGroup, Mr. Speed's wife and their
children, David H. Hoster II, President of EastGroup, and his wife, and N. Keith
McKey, Executive Vice President of EastGroup, and his wife, gave Copley
irrevocable proxies to vote all of the EastGroup Shares held by them in favor of
the Merger and the Merger Agreement and against any action that would constitute
a breach of the Merger Agreement.
PROPOSAL 1 -- THE MERGER AGREEMENT
SURVIVING COMPANY
Information with respect to the constituent companies in the Merger,
EastGroup and Copley, is contained under "Information Concerning Copley" and
"Information Concerning EastGroup" elsewhere in this Joint Proxy
Statement/Prospectus. Additional information with respect to EastGroup is
contained in its 1995 Annual Report to Shareholders, which accompanies this
Joint Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, at the Effective Time, Copley will merge
with and into EastGroup and the separate corporate existence of Copley will
cease. EastGroup will be the Surviving Company and the former Copley
stockholders will become EastGroup shareholders with all of the rights and
privileges attendant thereto. As a result of the Merger, EastGroup will succeed
to Copley's partnership interests and its equity interests. Immediately
following the Merger, CPI Holdings, Inc., a subsidiary of Copley, will remain in
existence and will become a subsidiary of EastGroup. The Surviving Company will
have ownership interests in thirty-two industrial and office properties in eight
states with a total of more than 5,000,000 square feet of leasable area. These
industrial and office properties will be located primarily in the Sunbelt area
of the southern United States, with Copley's properties allowing the Surviving
Company to have a presence in Arizona and California to complement EastGroup's
investments which are primarily in Florida and Texas.
The current executive officers and trustees of EastGroup will manage the
business and affairs of the Surviving Company following the consummation of the
Merger. For information concerning these persons, see "Proposal 2 -- Election of
Trustees (For EastGroup Shareholders Only)."
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<PAGE> 43
Following the consummation of the Merger, EastGroup believes that the
Surviving Company will be one of the larger publicly held owners and operators
of industrial and office properties in the Sunbelt region of the United States.
The Surviving Company will own (assuming the consummation of the EastGroup --
LNH Merger) industrial facilities encompassing approximately 4,409,950 square
feet of leasable space in six states and office buildings encompassing
approximately 622,815 in square feet of leasable space in four states. Set forth
below is a chart which contains certain information concerning the properties to
be owned by the Surviving Company following the consummation of the Merger and
the consummation of the EastGroup -- LNH Merger. Properties indicated by an
asterisk (*) are currently owned by Copley and properties indicated by double
asterisks (**) are currently owned by LNH.
<TABLE>
<CAPTION>
YEAR(S) PERCENT
ACQUIRED LEASED AT LEASE
OR RENTABLE DECEMBER 31, SQUARE EXPIRATION
INDUSTRIAL CONSTRUCTED SQUARE FEET 1995 MAJOR TENANTS FEET DATE
- ----------------------------------------- --------- ----------- ------------ ----------------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ARIZONA
(*)Broadway Industrial Center 1994 121,463 100% Pillsbury Bakeries 66,660 2001
Tempe, Arizona Aaron Rents 26,668 1998
Al Roach Sales 14,803 1998
Total Forms 13,332 1996
(*)Metro Business Park 1985 188,743 96% Honeywell 75,620 1996
Phoenix, Arizona PCI 30,000 1998
Hosanna Christian 22,000 1996
CALIFORNIA
(*)Huntwood Associates 1987-1988 514,400 100% Kirk Paper 139,400 2003
Hayward, California SS Retail 100,000 2001
Body Shop 54,600 2005
(*)Wiegman Associates 1986-1987 261,900 100% Office Club 125,700 1997
Hayward, California Portal 71,600 1997
Bay Area Laundry 40,000 1997
(*)Baygreen Industrial Park 1993 40,200 100% Summerhill Furniture 25,200 1998
Hayward, California Tridecs 7,500 1996
G&S Designs 7,500 1997
(*)Kingsview Industrial Center 1995 82,920 100% Artistic Welding 82,920 2005
Carson, California
(*)Dominguez 1985 261,500 100% Price Transfer 261,500 1996
Carson, California
(*)University Business Center 1987-1988 230,412 99% PS Medical 82,132 2003
Santa Barbara, California Medical Concepts 51,167 1999
ABC Clio 24,020 1997
COLORADO
Rampart Distribution Center 1988 116,000 100% First Data Corp. 22,648 2000
Denver, Colorado ReMax Intl., Inc. 21,428 1998
Citicorp Diners Club 18,333 1997
FLORIDA
Deerwood Distribution Center 1989 98,000 100% Steinmart 56,250 1997
Jacksonville, Florida Data Supplies 15,000 2000
Phillips Distribution Center 1994 161,000 85% Southeast Atlantic 33,400 1999
Jacksonville, Florida Bell South 21,206 1998
Advanced Career 13,499 1999
Southeast Atlantic 12,500 1997
Lake Pointe Business Park 1993 376,000 98% Owens & Minor 67,279 1997
Jacksonville, Florida Trane 38,116 1999
LaQuinta Distribution Center 1989 33,000 100% GE Capital Leasing 33,000 1999
Orlando, Florida
Exchange Distribution Center(1) 1994 139,000 100% Central Garden & Supply 104,392 2001
Orlando, Florida Central Moving 20,977 1998
Sunbelt Distribution Center 1989 208,000 98% C&M Core Distribution 53,600 1999
Orlando, Florida Broder Brothers 50,400 1999
Ryder Logistics 37,600 1998
L. Luria & Son 34,400 1998
56th Street Commerce Park(1) 1993 156,000 90% Parts House 18,000 1997
Tampa, Florida
JetPort Commerce Park, 1993-1995 220,000 99% Lo-An 27,600 1996
515 & 516(1)
Tampa, Florida
</TABLE>
27
<PAGE> 44
<TABLE>
<CAPTION>
YEAR(S) PERCENT
ACQUIRED LEASED AT LEASE
OR RENTABLE DECEMBER 31, SQUARE EXPIRATION
INDUSTRIAL CONSTRUCTED SQUARE FEET 1995 MAJOR TENANTS FEET DATE
- ----------------------------------------- --------- ----------- ------------ ----------------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Westport Commerce Park(1) 1994 140,000 100% U.S. Postal Service 44,800 1999
Tampa, Florida Reptron Electronics 24,035 1997
(**)Linpro Commerce Center 1992 99,000 95% Major Supply 25,000 1997
Fort Lauderdale, Florida Lennox 17,500 1998
Progressive Games 11,000 1997
Pride Outdoor 10,000 1998
(*)Sample/I-95 Business Park 1989-1995 157,412 100% Sheribel Wicker 41,810 2001
Pompano Beach, Florida General Electric 36,000 2002
Kraft Foods 18,000 2005
OKLAHOMA
Baxter Healthcare 1994 60,000 100% Baxter Healthcare 60,000 1998
Tulsa, Oklahoma
TEXAS
Exchange Warehouses 1988 36,000 100% Scholastic Book Fair 18,266 1996
Arlington, Texas
2020-2024 Exchange Drive
401 Exchange Drive 1988 21,000 100% DRB Holdings 21,000 1998
Dallas Morning News 18,265 2000
Interstate Distribution Center I 1988 113,000 100% Crawford Electric 30,110 2000
Assoc. Corp. of N. Am. 29,734 1996
Dallas, Texas Adams Produce 28,809 1997
Martin Brower 12,540 1996
Kanaflex Corp. 12,000 1997
Interstate Distribution Center II 1988 134,000 100% Designer Accents 133,979 1999
Venture Distribution Center 1988 156,000 100% BASF Wyandotte Corp. 51,987 2000
Dallas, Texas Mattress Giant 43,146 2000
Impressions 40,493 1996
McCoy Paper 20,374 2000
Venture Duplex 1988 53,000 100% Jakari 31,731 1999
Dallas, Texas Dalton Instruments 21,569 1996
Northwest Point Business Park 1994 232,000 100% Genesis Distribution 35,825 1998
Houston, Texas R.J. Acquisition 30,600 1999
Commerce Fresh 25,755 1998
OFFICE BUILDINGS
- -----------------------------------------
VIRGINIA
8150 Leesburg Pike....................... 1975/1989 201,000 96% Maximus 49,495 1998
Tysons Corners, Virginia COMCOR 30,188 1996
TEXAS
Santa Fe Energy Building................. 1994 176,000 96% Santa Fe Energy 123,043 1999
Houston, Texas
CALIFORNIA
Nobel Business Center 1987 54,000 95% Bio-Rad 13,282 1998
Hercules, California Families First 11,620 1999
Biovation 8,712 1998
Agile 8,875 1999
(*)Los Angeles Corporate Center 1986 76,542 50% County of Los Angeles 29,542 2000
Monterey Park, California James Boyle 8,500 2000
MARYLAND
(*)Columbia Place 1988 115,273 100% Ceridian Corporation 115,273 2009
Columbia, Maryland
SHOPPING CENTERS(2)
- -----------------------------------------
MISSOURI
(**)Liberty Corners 1994 121,432 85% Price Chopper 56,000 2007
Shopping Center(3)
Liberty (Kansas City), Missouri
RHODE ISLAND
(**)Cowesett Corners 1995 135,713 97% Super Stop N Shop 55,532 2007
Shopping Ctr.(4)
Warwick, Rhode Island Sportswear Store, Inc. 25,030 1998
Edwards Paint & Decor. 17,059 2005
</TABLE>
28
<PAGE> 45
<TABLE>
<CAPTION>
PERCENT
LEASED AT
YEAR TOTAL NO. DECEMBER 31,
APARTMENTS ACQUIRED OF UNITS 1995
- ----------------------------------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ALABAMA
Grande Pointe Apartments 1994 180 97%
Daphne (Mobile), Alabama
FLORIDA
Plantations at Killearn 1994 184 98%
Tallahassee, Florida
GEORGIA
LaVista Apartments 1991 240 97%
Atlanta, Georgia
KANSAS
Eastgate Apartments 1995 108 88%
Wichita, Kansas
MISSISSIPPI
Hampton House Apartments 1994 164 99%
Jackson, Mississippi
TEXAS
Pin Oaks Apartments 1980 142 97%
Houston, Texas
Doral Club Apartments 1992 296 92%
San Antonio, Texas
Sutton House Apartments 1993 265 91%
San Antonio, Texas
</TABLE>
- ---------------
(1) EastGroup owns a 75% tenancy-in-common interest in each of the Exchange
Distribution Center, 56th Street, Commerce Center, JetPort Commerce Park,
515 & 516, and Westport Commerce Park. In each instance, EastGroup's 25%
tenant-in-common is the same unrelated third party.
(2) EastGroup does not consider shopping centers to be a part of its long term
investment strategy and intends to seek disposition of these assets as
market conditions permit.
(3) LNH has a 77.78% interest in the joint venture which owns Liberty Corners
Shopping Centers.
(4) LNH has a 50% interest in the joint venture which owns the Cowesett Corners
Shopping Center.
GENERAL
The Merger Agreement provides for a business combination transaction
between EastGroup and Copley in which Copley would be merged with and into
EastGroup and the holders of Copley Shares would be issued EastGroup Shares
according to the Exchange Ratio in a transaction intended to qualify as a
"purchase" for financial accounting purposes and as a tax-free reorganization
for federal income tax purposes. This Joint Proxy Statement/Prospectus provides
a summary of the material terms of the Merger Agreement. The discussion and
description of the material terms of the Merger Agreement in this Joint Proxy
Statement/Prospectus are subject to and qualified in their entirety by reference
to the Merger Agreement, a copy of which is attached to this Joint Proxy
Statement/Prospectus as Appendix A and which is incorporated herein by this
reference.
EFFECTIVE TIME OF THE MERGER
In accordance with the MGCL and the MD REIT Law, the Merger will become
effective upon the acceptance for recording of the Articles of Merger by the
State Department of Assessments and Taxation of Maryland. Subject to the
fulfillment (or waiver) of the other conditions to the obligations of EastGroup
and Copley to consummate the Merger, it is currently expected that the Merger
will be consummated as soon as practicable following the approval by the
shareholders of EastGroup and the stockholders of Copley of the Merger and the
Merger Agreement at the EastGroup Meeting and the Copley Meeting, respectively.
29
<PAGE> 46
CONVERSION TERMS OF THE MERGER
At the Effective Time, the one outstanding Class A Share will be redeemed
for a price of $1.00 and each issued and outstanding Copley Share (other than
the Copley Shares owned by EastGroup which will be cancelled in the Merger) will
be converted into the right to receive EastGroup Shares based upon the Copley
Share Value. In the event Copley sells certain property pursuant to the Summer
Hill Option, Copley will distribute the proceeds therefrom to its stockholders
and the Copley Share Value will be reduced to approximately $15.30 per Copley
Share (based upon the quotient equal to $1,060,000 divided by 3,584,350 (the
number of Copley Shares outstanding as of March 15, 1996)). In the event Copley
distributes dividends to holders of Copley Shares in addition to Copley's
regular $0.27 per Copley Share quarterly dividend (or a pro rata portion thereof
in the quarter during which the Effective Time occurs) the Copley Share Value
will be reduced by the per Copley Share amount of such dividend or distribution
payments. See "-- Dividends."
The value of EastGroup Shares for purposes of calculating the ratio at
which the Copley Shares will be converted into EastGroup Shares in the Merger
will be the EastGroup Stock Price; however, the EastGroup Stock Price will be
deemed to equal (i) $20.25 if the average price of EastGroup Shares is less than
or equal to $20.25 or (ii) $23.00 if the average price of EastGroup Shares is
greater than or equal to $23.00. Copley has the right, waivable by it, to
terminate the Merger Agreement without liability if the average closing price of
EastGroup Shares on the NYSE on the 20 trading days immediately preceding the
fifth trading day prior to (i) the date on which the SEC declares EastGroup's
Registration Statement with respect to the Merger effective or (ii) the date on
which the Copley Meeting is held, is equal to or less than $18.25.
EXCHANGE OF COPLEY SHARE CERTIFICATES
Promptly after the Effective Time, EastGroup will cause the Exchange Agent
to mail to each holder of record of a Copley Share Certificate, (i) a Letter of
Transmittal which shall specify that delivery shall be effected, and risk of
loss and title to the Copley Share Certificates shall pass, only upon delivery
of the Copley Share Certificates to the Exchange Agent, and (ii) instructions
for use in effecting the surrender of the Copley Share Certificates in exchange
for certificates representing EastGroup Shares and cash in lieu of fractional
shares. Upon surrender of a Copley Share Certificate for cancellation to the
Exchange Agent together with such Letter of Transmittal duly executed and
completed in accordance with the instructions thereto, the holder of such Copley
Share Certificate will be entitled to receive in exchange therefor a certificate
representing the number of whole EastGroup Shares to which such holder shall be
entitled and a check representing the amount of cash in lieu of fractional
shares, if any, plus the amount of any dividends or distributions, if any,
pursuant to the following paragraph, after giving effect to any required
withholding tax, and the Copley Share Certificate so surrendered will be
cancelled. No interest will be paid or accrued on cash in lieu of fractional
shares or on any dividend or distribution payable to holders of Copley Share
Certificates. Copley stockholders who purchased Copley Shares through Copley's
dividend reinvestment plan and who did not receive a Copley Share Certificate in
respect thereof will be entitled to receive in exchange therefor a certificate
or certificates representing EastGroup Shares and cash upon surrender to the
Exchange Agent of a duly executed Letter of Transmittal. Any person constituting
an "Affiliate" of Copley within the meaning of Rule 145 promulgated under the
Securities Act will not be issued EastGroup Shares in exchange for their
surrendered Certificates until EastGroup has received from such person an
Affiliate Letter (as defined below). COPLEY STOCKHOLDERS SHOULD NOT SEND IN
THEIR COPLEY SHARE CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
No dividends or other distributions on EastGroup Shares will be paid with
respect to any Copley Shares represented by a Copley Share Certificate until
such Copley Share Certificate is surrendered for exchange as provided above;
provided, however, that subject to the effect of applicable laws, following
surrender of any such Copley Share Certificate, there will be paid to the holder
of certificates representing whole EastGroup Shares issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to such whole EastGroup Shares and not paid, less the
amount of any withholding taxes which may be required thereon, and (ii) at the
appropriate payment date, the amount of any dividends or other distributions
with a record date after the Effective Time but prior to surrender and a payment
date subsequent to surrender
30
<PAGE> 47
payable with respect to such whole EastGroup Shares, less the amount of any
withholding taxes which may be required thereon.
No fractional EastGroup Shares will be issued in connection with the
Merger. Each holder of Copley Shares otherwise entitled to a fractional
EastGroup Share shall receive in lieu thereof, upon surrender of a Copley Share
Certificate, an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying (i) the EastGroup Stock Price by (ii) the fraction of
an EastGroup Share to which such holder would otherwise be entitled.
At and after the Effective Time, there shall be no transfers on the stock
transfer books of Copley of the Copley Shares which were outstanding immediately
prior to the Effective Time.
Any unused portion of the monies from which cash payments will be made in
lieu of fractional interests in EastGroup Shares (including the proceeds of any
investments thereof) and any EastGroup Shares deposited for the benefit of the
holders of Copley Shares that remain unclaimed by the former stockholders of
Copley one year after the Effective Time will be delivered to the Surviving
Company. Any former stockholders of Copley who have not complied with the
exchange procedures described above within one year after the Effective Time
shall thereafter look only to the Surviving Company for payment of their
EastGroup Shares and cash in lieu of fractional shares (plus dividends and
distributions, if any) as determined pursuant to the Merger Agreement, without
any interest thereon. Copley, EastGroup, the Exchange Agent or any other person
will not be liable to any former holder of Copley Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
In the event any Copley Share Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Copley Share Certificate to be lost, stolen or destroyed and, if required
by the Surviving Company, the posting by such person of a bond in such
reasonable amount as the Surviving Company may direct as indemnity against any
claim that may be made against it with respect to such Copley Share Certificate,
the Exchange Agent or the Surviving Company will issue in exchange for such
lost, stolen or destroyed Copley Share Certificate the EastGroup Shares and cash
in lieu of fractional shares (plus, to the extent applicable, dividends and
distributions payable, if any).
CONDITIONS TO THE MERGER
The respective obligations of EastGroup and Copley to effect the Merger and
the other transactions contemplated in the Merger Agreement are subject to the
fulfillment or waiver of several conditions at or prior to the Effective Time
including, among others: (i) the Merger and the Merger Agreement shall have been
approved by the requisite vote of the stockholders of Copley and the
shareholders of EastGroup; (ii) the waiting period applicable to the
consummation of the Merger under the HSR Act, if applicable, shall have expired
or been terminated; (iii) neither EastGroup nor Copley shall be subject to any
order, ruling or injunction of a court of competent jurisdiction which prohibits
the consummation of the transactions contemplated by the Merger Agreement; (iv)
the Registration Statement shall have been declared effective by the SEC under
the Securities Act, and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings for
that purpose shall have been initiated or, to the knowledge of EastGroup or
Copley, threatened by the SEC; (v) EastGroup shall have obtained the approval
for the listing of the EastGroup Shares issuable in the Merger on the NYSE,
subject to official notice of issuance; and (vi) all consents, authorizations,
orders and approvals of (or filings or registrations with) any governmental
commission, board, other regulatory body or third parties required to be made or
obtained in connection with the execution, delivery and performance of the
Merger Agreement and the ancillary agreements to the Merger Agreement shall have
been obtained or made except (a) for any consents or approvals which are
required from any holders of mortgages affecting any Copley properties, or (b)
where the failure to obtain or make any such consent, authorization, order,
approval, filing or registration would not have a Copley Material Adverse Effect
(as defined below) or an EastGroup Material Adverse Effect (as defined below),
as the case may be.
The obligations of each of Copley and EastGroup to effect the Merger are
also subject to the fulfillment or waiver by the other party, at or prior to the
Effective Time, of the following conditions: (i) the
31
<PAGE> 48
representations and warranties of Copley and EastGroup contained in the Merger
Agreement shall be true and correct in all material respects as of the Effective
Time; (ii) Copley and EastGroup shall have performed or complied in all material
respects with all agreements and covenants required by the Merger Agreement to
be performed or complied with by them on or prior to the Effective Time; and
(iii) each party shall have received the opinion of its tax counsel, dated not
less than five business days prior to the date the Registration Statement is
declared effective by the SEC, to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization qualifying under the
provisions of Section 368(a)(l)(A) of the Code, which opinion shall not have
been withdrawn or modified in any material respect.
The obligation of Copley to effect the Merger and the other transactions
contemplated therein is also subject to the fulfillment or waiver of the
following conditions at or prior to the Effective Time including: (i) either
Copley shall have transferred its interest in the University Business Center
("UBC"), to JCB Limited ("Bermant"), prior to the Effective Time or Bermant
shall have failed to exercise its right of first refusal concerning UBC which,
pursuant to correspondence dated March 6, 1996, Bermant advised Copley it would
not exercise; (ii) EastGroup shall have purchased liability insurance coverage
for Copley's directors and officers for a period of six years which will provide
the Copley directors and officers with $5,000,000 of aggregate coverage,
provided, however, that the cost of such policy shall not exceed $600,000; (iii)
the officers of Copley shall have resigned from their positions at Baygreen Eden
Landing Industrial Park Owners Association and EastGroup's nominees shall have
been appointed to fill such positions; and (iv) from the date of the Merger
Agreement through the Effective Time, there shall not have occurred any change
concerning EastGroup or any of its subsidiaries that has had or could be
reasonably likely to have a material adverse effect on the business, results of
operations or financial condition of EastGroup and its subsidiaries taken as a
whole (an "EastGroup Material Adverse Effect").
Similarly, EastGroup's obligation to effect the Merger is subject to the
fulfillment or waiver of certain conditions at or prior to the Effective Time
including: (i) Copley shall have amended its Rights Agreement so that the
transaction contemplated hereunder shall not trigger or otherwise affect any
rights or obligations under such Rights Agreement and Copley will redeem all
outstanding rights (the "Copley Rights") under such Rights Agreement at a
redemption price of $0.01 per Copley Right effective immediately prior to the
Effective Time; and (ii) from the date of the Merger Agreement through the
Effective Time, there shall not have occurred any change concerning Copley or
any of its subsidiaries, that has had or could be reasonably likely to have a
material adverse effect on the business, results of operations or financial
condition of Copley and its subsidiaries taken as a whole (a "Copley Material
Adverse Effect").
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
relating to, among other things: (i) the due organization, power, authority and
standing of EastGroup and Copley and their respective subsidiaries and similar
corporate matters; (ii) the authorization, execution, delivery and
enforceability of the Merger Agreement; (iii) the capital structure of EastGroup
and Copley; (iv) the ownership, capital structure and certain other corporate
information concerning subsidiaries of EastGroup and Copley; (v) investment
interests of EastGroup and Copley; (vi) conflicts under charters or bylaws,
violations of any instruments and required consents or approvals; (vii) certain
documents filed by each of EastGroup and Copley with the SEC and the accuracy of
information contained therein; (viii) litigation; (ix) conduct of business in
the ordinary course and the absence of certain changes or material adverse
effects; (x) taxes; (xi) books and records; (xii) properties; (xiii)
environmental matters; (xiv) brokers' and finders' fees with respect to the
Merger; (xv) receipt of fairness opinions; (xvi) related party transactions; and
(xvii) contracts and commitments. These representations and warranties do not
survive the Merger.
CERTAIN COVENANTS
Except as specifically permitted by the Merger Agreement or upon written
consent of the other party, EastGroup and Copley have each agreed, among other
things, that it will, prior to the Effective Time: (i) use its reasonable best
efforts, and cause its subsidiaries to use their reasonable best efforts, to
preserve intact its business organizations and goodwill and keep available the
services of its respective officers and employees;
32
<PAGE> 49
(ii) confer on a regular basis with one or more representatives of the other to
report operational matters of materiality, and, subject to certain exceptions,
any proposals to engage in material transactions; (iii) promptly notify the
other of any material emergency or other material change in the condition
(financial or otherwise), in its businesses, properties, assets, liabilities,
prospects or the normal course of its businesses or in the operation of its
properties, any material governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the breach in
any material respect of any representation or warranty contained in the Merger
Agreement; and (iv) promptly deliver to the other true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of the
Merger Agreement.
Unless EastGroup has consented as provided in the Merger Agreement, Copley
has agreed that, among other things, prior to the Effective Time, it (i) shall,
and shall cause each of its subsidiaries to, conduct its operations according to
its usual, regular and ordinary course in substantially the same manner as
previously conducted, subject to clauses (ii)-(ix) below; (ii) shall not, and
shall cause each of its subsidiaries not to, acquire, enter into an option to
acquire or exercise an option or contract to acquire additional real property,
incur additional indebtedness, encumber assets or commence construction of, or
enter into any agreement or commitment to develop or construct, any other type
of real estate projects, except for (a) the potential sale of premises pursuant
to the Summer Hill Option, (b) the potential sale of Copley's interest in UBC,
and (c) Copley's conveyance of certain tenancy-in-common interests; (iii) shall
not amend its charter documents, and shall cause each of its subsidiaries not to
amend its respective certificate of incorporation, bylaws, joint venture
documents, partnership agreements or equivalent documents except as contemplated
by the Merger Agreement or otherwise; (iv) shall not (a) issue any shares of its
capital stock, effect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, (b) grant, confer or award any
option, warrant, conversion right or other right not existing on the date of the
Merger Agreement to acquire any shares of its capital stock, (c) increase any
compensation or enter into or amend any employment agreement with any of its
present or future officers or directors, or (d) adopt any new employee benefit
plan (including any stock option, stock benefit or stock purchase plan), or
amend any existing employee benefit plan in any material respect, except for
changes which are less favorable to participants in such plans; (v) except as
permitted by the Merger Agreement, shall not, and shall not permit any of its
subsidiaries to, sell, lease or otherwise dispose of (a) any properties or any
portion thereof or any of the capital stock of or partnership or other interests
in any of its subsidiaries or (b) except in the ordinary course of business, any
of its other assets which are material, individually or in the aggregate; (vi)
shall not, and shall not permit any of its subsidiaries to, make any loans,
advances or capital contributions to, or investments in, any other person; (vii)
shall not, and shall not permit any of its subsidiaries to, pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements (or
the notes thereto) of Copley included in Copley's filings with the SEC as of the
date of the Merger Agreement or incurred in the ordinary course of business
consistent with past practice; (viii) shall not, and shall not permit any of its
subsidiaries to enter into any material commitment, contractual obligation,
borrowing, capital expenditure or transaction (each, a "Commitment") which may
result in total payments or liability by or to it in excess of $50,000; and (ix)
shall not, and shall not permit any of its subsidiaries to, enter into any
Commitment with any officer, director, consultant or affiliate of Copley or any
of its subsidiaries.
Unless Copley has consented as provided in the Merger Agreement, EastGroup
has agreed that, among other things, prior to the Effective Time, it shall not:
(a) directly or indirectly through an EastGroup subsidiary merge or consolidate
with, or acquire all or substantially all of the assets of, any person or entity
except for LNH; (b) incur, in one transaction or a series of transactions, an
additional $15,000,000 of indebtedness; or (c) issue any shares of its capital
stock (except in connection with EastGroup's employee or trustee benefit plans),
effect any stock split, reverse stock split, stock dividend, recapitalization or
other similar transaction, or grant, confer or award any option, warrant,
conversion right or other right not existing on the date hereof to acquire any
EastGroup Shares (except in connection with EastGroup's employee or trustee
benefit plans).
33
<PAGE> 50
EastGroup and Copley have also agreed that in the event the Summer Hill
Option is exercised, Copley will distribute the net proceeds therefrom to its
stockholders prior to the Effective Time. Additionally, Copley may declare, set
aside and pay dividends of not more than $0.27 per Copley Share (except as
permitted in the previous sentence or as necessary to maintain Copley's REIT
status) for each full calendar quarter prior to the Effective Time. See
"-- Dividends."
Unless EastGroup has consented as provided in the Merger Agreement, Copley
has agreed that it shall not: (i) effect any material change in any lease or
occupancy agreement currently in effect which affects any property of Copley
(together with such additional leases approved or permitted pursuant to the
Merger Agreement, the "Leases"), (ii) renew or extend the term of any Lease,
unless the same is an extension or expansion permitted pursuant to the terms of
an existing Lease, or (iii) enter into any new Lease or cancel or terminate any
Lease.
Copley has agreed to use its reasonable best efforts to deliver or cause to
be delivered to EastGroup prior to the Effective Time from each of Copley's
Affiliates, within the meaning of Rule 145 promulgated under the Securities Act,
an Affiliate Letter. EastGroup has agreed to file the reports required to be
filed by it under the Exchange Act and the rules and regulations adopted by the
SEC thereunder, and to take such further action as any Affiliate of Copley may
reasonably request, all to the extent required from time to time to enable such
Affiliate to sell EastGroup Shares received by such Affiliate in the Merger
without registration under the Securities Act pursuant to Rule 145(d)(1) or any
successor rule or regulation subsequently adopted by the SEC.
Copley and EastGroup have agreed that Copley may take any action which in
its reasonable judgment is necessary for Copley to maintain its qualification as
a REIT, including the making of dividends or distribution payments. EastGroup
has agreed to use its best efforts to take any such actions as may be necessary
to maintain Copley's status as a REIT for any period or portion thereof ending
on or prior to the Merger.
DIVIDENDS
The Merger Agreement provides that Copley may declare, set aside and pay
dividends of not more than $0.27 per Copley Share (except as described below)
for each full calendar quarter prior to the Effective Time. Copley currently
anticipates that it will pay regular quarterly dividends on the following
payment dates to stockholders of record on the dates indicated, provided that
the Effective Time has not occurred prior to such record date:
<TABLE>
<CAPTION>
QUARTER RECORD DATE PAYMENT DATE
- -------- --------------- ---------------
<S> <C> <C>
First March 19, 1996 March 27, 1996
Second June 18, 1996 June 26, 1996
</TABLE>
Copley may pay a pro rata portion of its regular quarterly dividend in the
quarter during which the Effective Time occurs. Such pro rata amount shall equal
the quotient the numerator of which equals $0.27 multiplied by the number of
days commencing on the most recent record date and ending on the date of the
Effective Time and the denominator of which equals 90.
Also, pursuant to the Merger Agreement, to the extent the Summer Hill
Option is exercised, Copley will distribute the net proceeds therefrom to its
stockholders prior to the Effective Time. To the extent Copley distributes the
proceeds from the exercise of the Summer Hill Option to its stockholders prior
to the Effective Time, each Copley Share will be converted into EastGroup Shares
based upon a value of approximately $15.30 (a reduction of approximately $0.30
per Copley Share based on the quotient equal to $1,060,000 divided by 3,584,350
(the number of Copley Shares outstanding as of March 15, 1996)).
Additionally, to the extent that any dividends or distributions are paid to
Copley stockholders other than those payments described above, the Copley Share
Value shall be reduced by the per Copley Share amount of such dividend or
distribution payments. Prior to the payment of any such dividend or distribution
contemplated by the preceding sentence, Copley shall provide written notice of
its intention to make such dividend or distribution and the reasons therefor to
EastGroup.
34
<PAGE> 51
Copley or any subsidiary of Copley may take any action at any time that in
the reasonable judgment of Copley is necessary for Copley to maintain its
qualification as a REIT for any period or portion thereof ending on or prior to
the Effective Time, including, without limitations, making dividend or
distribution payments to stockholders. To the extent such distribution or
dividend is paid to Copley stockholders, the Copley Share Value shall be reduced
by the per Copley Share amount of such dividend or distribution payment.
TERMINATION
The Merger Agreement may be terminated and abandoned at any time prior to
the Effective Time, whether before or after approval of the Merger and the
Merger Agreement by the stockholders of Copley and the shareholders of
EastGroup, in a number of circumstances, including, among others: (i) by the
mutual written consent of Copley and EastGroup; (ii) by either Copley or
EastGroup if (a) any United States federal or state court of competent
jurisdiction or other governmental entity shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and non-appealable, provided that the party seeking to terminate
shall have used its best efforts to appeal such order, decree, ruling or other
action, (b) the Merger Agreement and the transactions contemplated thereby shall
have failed to receive the requisite vote for approval and adoption by the
shareholders of EastGroup or the stockholders of Copley upon the holding of a
duly convened shareholder meeting, or (c) the Merger shall not have been
consummated on or before September 1, 1996 (other than due to the failure of the
party seeking to terminate the Merger Agreement to perform its obligations under
the Merger Agreement required to be performed by it at or prior to the Effective
Time); (iii) by Copley if (a) any representation, warranty, covenant or
agreement of EastGroup set forth in the Merger Agreement has been breached or
become untrue, as the case may be, and is incapable of being satisfied by
September 1, 1996, provided, however, that, in any case, a willful breach shall
be deemed to be incapable of being satisfied, (b) the Board of Directors of
Copley recommends to Copley's stockholders approval or acceptance of an
Acquisition Proposal (as defined below under "-- No Solicitation of
Transactions") by a person other than EastGroup, but only in the event that the
Board of Directors of Copley, after consultation with and based upon the advice
of either Goodwin, Procter & Hoar or Hale and Dorr, or another nationally
recognized law firm, has determined in good faith that such action is necessary
for the Board of Directors of Copley to comply with its fiduciary duties to its
stockholders under applicable law, (c) EastGroup shall have failed as soon as
practicable to mail this Joint Proxy Statement/Prospectus to its shareholders or
to include the recommendation of its Board of Trustees of the Merger Agreement
and the transactions contemplated thereby in this Joint Proxy
Statement/Prospectus or (d) if the average closing sales prices of EastGroup
Shares on the NYSE, on each of the twenty trading days immediately preceding the
fifth trading day prior to either (x) the date on which this Joint Proxy
Statement/Prospectus is declared effective by the SEC or (y) the date of the
Copley Meeting, is equal to or less than $18.25 without any liability on the
part of Copley; or (iv) by EastGroup if (a) any representation, warranty,
covenant or agreement of Copley set forth in the Merger Agreement has been
breached or become untrue, as the case may be, and is incapable of being
satisfied by September 1, 1996, provided, however, that, in any case, a willful
breach shall be deemed to be incapable of being satisfied, (b) the Board of
Directors of Copley fails to make, withdraws, amends, modifies or changes its
approval or recommendation of the Merger Agreement or any of the transactions
contemplated thereby, (c) Copley fails as soon as practicable to mail this Joint
Proxy Statement/Prospectus to its stockholders or to include the recommendation
of its Board of Directors of the Merger Agreement and the transactions
contemplated thereby in this Joint Proxy Statement/Prospectus, (d) the Board of
Directors of Copley shall have recommended that stockholders of Copley accept or
approve an Acquisition Proposal by a person other than EastGroup, or (e) Copley
or its Board of Directors shall have resolved to do any of the events set forth
in (iv)(b), (iv)(c) or (iv)(d) above.
TERMINATION AMOUNT AND EXPENSES
If (i) EastGroup terminates the Merger Agreement because (a) the Board of
Directors of Copley has recommended that stockholders of Copley accept or
approve an Acquisition Proposal by a person other than EastGroup (or Copley or
its Board of Directors has resolved to do such), or (b) any representation,
warranty, covenant or agreement on the part of Copley set forth in the Merger
Agreement has been willfully breached;
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or (ii) Copley terminates the Merger Agreement because the Board of Directors of
Copley, after consultation with and based upon the advice of either Goodwin,
Procter & Hoar or Hale and Dorr, or another nationally recognized law firm, has
determined in good faith that its fiduciary duties to its stockholders under
applicable law require it to recommend to its stockholders approval or
acceptance of an Acquisition Proposal by a person other than EastGroup; then
Copley shall pay to EastGroup the termination fees in cash equal to the sum of
$1,500,000 plus EastGroup's out-of-pocket costs and expenses in connection with
the Merger Agreement and the transactions contemplated thereby, up to a maximum
of $375,000.
If EastGroup terminates the Merger Agreement because (i) the Board of
Directors of Copley has failed to make, or has withdrawn, amended, modified or
changed its approval or recommendation of the Merger Agreement or any of the
transactions contemplated thereby; (ii) Copley has failed as soon as practicable
to mail this Joint Proxy Statement/Prospectus to its stockholders or to include
the recommendation of its Board of Directors of the Merger Agreement and the
transactions contemplated thereby in this Joint Proxy Statement/Prospectus; or
(iii) any representation, warranty, covenant or agreement on the part of Copley
set forth in the Merger Agreement has been breached or become untrue, as the
case may be, and is incapable of being satisfied by September 1, 1996 (except
for termination because of a willful breach by Copley in which case the previous
paragraph will apply), Copley shall pay all of EastGroup's out-of-pocket costs
and expenses in connection with the Merger Agreement and the transactions
contemplated thereby, up to a maximum of $375,000.
Except as otherwise provided in the Merger Agreement, EastGroup and Copley
have agreed that all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such expenses, except that (i) the filing fee in connection with the
HSR Act filing, if any; (ii) the filing fee in connection with the filing of
this Registration Statement with the SEC; and (iii) the expenses incurred for
printing and mailing the Registration Statement shall be shared equally by
Copley and EastGroup. EastGroup and Copley have also agreed that all costs and
expenses for professional services rendered pursuant to the transactions
contemplated by the Merger Agreement including, but not limited to, investment
banking and legal services, will be paid by each party incurring such services.
NO SOLICITATION OF TRANSACTIONS
Unless and until the Merger Agreement has been terminated in accordance
with its terms, Copley has agreed and covenanted that neither it nor any of its
subsidiaries will, and each of them will direct and use its best efforts to
cause its respective officers, directors, employees, agents and representatives
not to, directly or indirectly, initiate, solicit or knowingly encourage any
inquiries or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with respect to a
merger, acquisition, tender offer, exchange offer, consolidation or similar
transaction involving, or any purchase of 10% or more of the assets, any equity
securities or partnership interests of, Copley or any of its subsidiaries, other
than the transactions contemplated by the Merger Agreement (any such proposal or
offer being herein referred to as an "Acquisition Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal. In connection with the Merger Agreement, Copley agreed to immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted prior to the date of the Merger
Agreement with respect to any of the foregoing and to take the necessary steps
to inform the individuals or entities referred to above of these obligations.
Copley has also agreed to notify EastGroup immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with Copley.
Notwithstanding the foregoing, the Board of Directors of Copley may (i) furnish
information to or enter into discussions or negotiations with any person or
entity that makes an unsolicited bona fide Acquisition Proposal, if, and only to
the extent that (a) the Board of Directors of Copley, after consultation with
and based upon the advice of either Goodwin, Procter & Hoar or Hale and Dorr, or
another nationally recognized law firm, determines in good faith that such
action is required for the Board of Directors to comply with its fiduciary
duties to stockholders under applicable law, (b) prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity, Copley
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provides written notice to EastGroup to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity, and (c) Copley keeps EastGroup informed of the status of any such
discussions or negotiations; (ii) to the extent applicable, comply with Rule
14e-2 and Rule 14a-9 promulgated under the Exchange Act with regard to an
Acquisition Proposal; and (iii) furnish information to, enter into discussions
or negotiations with, execute an agreement with, or consummate transactions with
(a) Summer Hill, Ltd. and its affiliates, successors and assigns in connection
with the Summer Hill Option, and (b) Gary and Leonora Hewson, in connection with
the exchange of tenancy-in-common interests affecting certain Copley properties.
INDEMNIFICATION
EastGroup has agreed that all rights to indemnification or exculpation
existing in favor of the directors, officers, employees, fiduciaries and agents
of Copley and each of its subsidiaries as provided in their respective charters
or bylaws in effect as of the date of the Merger Agreement with respect to
matters occurring at or prior to the Effective Time will survive the Merger and
will continue in full force and effect for a period of six years after the
Effective Time; provided, however, that in the event any claim or claims are
asserted or made within such six year period, all rights to indemnification in
respect of any such claim or claims will continue until disposition of any and
all such claims.
EastGroup has also agreed to purchase, at or prior to the Effective Time,
liability insurance coverage for the directors and officers of Copley for a
period of six years which will provide such directors and officers with
$5,000,000 of aggregate coverage and which shall have a retention of no more
than $500,000; provided, however, that the cost of such policy shall not exceed
$600,000.
In addition to the rights provided above, in the event of any threatened or
actual claim, action, suit, proceeding or investigation, whether civil, criminal
or administrative, including, without limitation, any claim, action, suit,
proceeding or investigation in which any person who is now, or has been, at any
time prior to the date of the Merger Agreement, or who becomes prior to the
Effective Time, a director, officer, employee, fiduciary or agent of Copley
(including Copley Advisors) or any of its subsidiaries (the "Indemnified
Parties"), is, or is threatened to be, made a party based in whole or in part
on, or arising in whole or in part out of, or pertaining to (i) the fact that
he, she or it is or was a director, officer, employee or agent of Copley or any
of the subsidiaries or is or was serving at the request of Copley or any of its
subsidiaries as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (ii) the Merger
Agreement or any of the transactions contemplated by the Merger Agreement,
whether in any case asserted or arising before or after the Effective Time, the
parties to the Merger Agreement have agreed to cooperate and use their
reasonable best efforts to defend against and respond thereto. EastGroup and
Copley have agreed that Copley will indemnify and hold harmless, and after the
Effective Time, EastGroup will indemnify and hold harmless, as and to the full
extent permitted by applicable law, each Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including attorneys' fees and
expenses), judgments, fines and amounts paid in settlement in connection with
any such threatened or actual claim, action, suit, proceeding or investigation,
and in the event of any such threatened or actual claim, action, suit,
proceeding or investigation (whether asserted or arising before or after the
Effective Time), (i) Copley, and EastGroup after the Effective Time, will
promptly pay expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the full extent
permitted by law, (ii) the Indemnified Parties may retain counsel satisfactory
to them, and Copley, and EastGroup after the Effective Time, will pay all fees
and expenses of such counsel for the Indemnified Parties within thirty days
after statements therefor are received, and (iii) Copley and EastGroup will use
their respective reasonable best efforts to assist in the vigorous defense of
any such matter; provided, that neither Copley nor EastGroup will be liable for
any settlement effected without its prior written consent (which consent shall
not be unreasonably withheld); and further that EastGroup will have no
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and non-appealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim indemnification as provided in the Merger
Agreement, upon learning of any such claim, action, suit, proceeding or
investigation, is required to
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notify Copley and, after the Effective Time, EastGroup, thereof, provided that
the failure to so notify will not effect the obligations of Copley or EastGroup
except to the extent such failure to notify materially prejudices such party.
AMENDMENTS
EastGroup and Copley may amend the Merger Agreement by action taken by
their respective Board of Trustees and Board of Directors at any time before or
after approval of matters presented in connection with the Merger by the
shareholders of EastGroup and the stockholders of Copley, but after any such
approval, no amendment shall be made which by law requires the further approval
of shareholders without obtaining such further approval.
BACKGROUND OF THE MERGER
During 1994, Copley sought to raise approximately $25,000,000 from
institutional investors in a private placement of Copley Shares. To assist with
this proposed offering, Copley hired the investment banking firm of Smith
Barney, Inc. to act as placement agent. The proceeds of the offering were to be
used to repay outstanding indebtedness and to acquire additional properties. In
June 1994, Copley's stockholders approved the issuance of up to $35,000,000 of
Copley Shares in one or more private placements. Throughout the remainder of
1994 and until May 1995, Copley was involved in discussions with potential
investors concerning the private investment.
At a meeting of EastGroup's Board of Trustees held on March 16, 1995,
EastGroup management made a presentation to the EastGroup Board regarding
Copley, which EastGroup management believed was an attractive acquisition
candidate. EastGroup management presented the Board with publicly available
information with respect to Copley's properties and financial performance, and
requested authority to purchase Copley Shares. After discussion, the EastGroup
Board authorized the expenditure of up to $2,600,000 on Copley Shares, with a
price not to exceed $10 per Copley Share. EastGroup began to purchase Copley
Shares. EastGroup retained PaineWebber on April 21, 1995 to act as EastGroup's
financial advisor in connection with a possible business combination with
Copley. On April 25, 1995, Leland R. Speed, Chief Executive Officer of
EastGroup, contacted Steven E. Wheeler, then President of Copley, to inform him
of EastGroup's acquisition of 5.22% of the outstanding Copley Shares and to
request a meeting with Copley's management to discuss a possible business
combination between the two parties. Mr. Wheeler asked Mr. Speed to provide him
with information concerning EastGroup and its business and tentatively scheduled
a meeting between the parties for May 4, 1995.
A meeting of the Copley Board of Directors was held on May 2, 1995 to
discuss EastGroup's acquisition of Copley Shares and the issues related thereto.
The Board directed Mr. Wheeler and Mary L. Lentz, Chief Operating Officer of
Copley, to meet as scheduled with EastGroup on May 4, 1995 and to report back to
the Board. Mr. Wheeler and Ms. Lentz were instructed by the Board to inform
EastGroup that any proposal would be considered in due course and that Copley
was not for sale. The Board noted that Copley was an externally-advised REIT and
that two of its directors, Joseph W. O'Connor and Mr. Wheeler, were officers of
its advisor, Copley Advisors, and that Copley's regular outside counsel, Hale
and Dorr, also represented Copley Advisors. Moreover, the Board discussed at
this meeting the fact that, under the terms of its advisory fee agreement,
Copley owed Copley Advisors a deferred advisory fee and that the payment of such
fee would likely be triggered by a business combination transaction similar to
that proposed by EastGroup. Because persons affiliated with Copley Advisors
could potentially be viewed as having conflicts of interest, the directors of
Copley who were not affiliated with Copley Advisors (the "Independent
Directors") decided to retain Goodwin, Procter & Hoar to serve as special
counsel to the Independent Directors.
Mr. Wheeler and Ms. Lentz met with Mr. Speed and David H. Hoster II,
President of EastGroup, at Copley's offices on May 4, 1995. At this meeting,
EastGroup expressed its interest in acquiring Copley in a negotiated
transaction. Mr. Speed and Mr. Hoster indicated that this would be a synergistic
transaction which would be beneficial to both companies' securityholders. The
price or specific terms of such a transaction were not discussed at this
meeting.
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On May 8, 1995, Mr. Wheeler and Ms. Lentz reported to the Copley Board of
Directors concerning their meeting with EastGroup's representatives. Also at
this meeting, the Board discussed the status of Copley's private placement and
the fact that discussions with potential investors had not resulted in a
successful private placement. In light of a number of events, including the
ongoing private placement effort, EastGroup's stated interest in a business
combination transaction and the status and position of Copley in the
marketplace, the Board decided to reevaluate its strategic plan and to analyze
all possible alternatives available to enhance stockholder value. In this
regard, the Board decided that it was appropriate to retain a financial advisor
to assist Copley in analyzing such alternatives, and a special committee of
Independent Directors, comprised of M. Colyer Crum and William F. McCall, Jr.
(the "Copley Special Committee"), was constituted to retain a financial advisor
on behalf of Copley, to consider issues relating to the Advisory Agreement with
Copley Advisors and certain other issues relating to the potential sale of
Copley. The Copley Special Committee interviewed a number of potential financial
advisors over the next week and on May 16, 1995 the Copley Special Committee
engaged Morgan Stanley to serve as Copley's exclusive financial advisor to
review and evaluate a range of strategic alternatives available to Copley and to
advise the Board of Directors on enhancing stockholder value.
At a meeting of EastGroup's Board of Trustees on May 16, 1995, EastGroup's
management updated the Board on their meetings with Copley management, and
expressed their opinion that Copley management was attempting to frustrate
EastGroup's efforts to engage in discussions with respect to a merger between
EastGroup and Copley. Management requested authority to make a proposal to
Copley for a merger between EastGroup and Copley. Management stated its belief
that making a merger proposal to Copley, which proposal would have to be
disclosed in an amendment to EastGroup's statement on Schedule 13D with respect
to Copley, would exert pressure on Copley management to proceed with a
transaction. After discussion, the EastGroup Board authorized EastGroup to make
a merger proposal to EastGroup pursuant to which Copley's stockholders would
receive $12.00 in EastGroup Shares for each Copley Share held by them, subject
to satisfactory due diligence review and negotiation of a definitive merger
agreement which included provisions that Copley would negotiate exclusively with
EastGroup and that if Copley received and accepted an unsolicited offer from a
third party during that time Copley would be obligated to pay to EastGroup a
"break-up" fee. This proposal was contained in a letter from EastGroup to
Copley's Board of Directors dated May 24, 1995. On June 5, 1995, EastGroup
informed the Copley Board by letter that EastGroup's proposal would expire at
5:00 p.m. EDT on June 8, 1995 unless the parties had entered into either a
definitive agreement or meaningful negotiations prior to such time.
At a meeting of the Copley Board of Directors held on June 8, 1995, Morgan
Stanley reported on the status of its evaluation of Copley's strategic
alternatives, including the proposed merger with EastGroup. Morgan Stanley
discussed the terms of EastGroup's merger proposal with the Board and
recommended that the Board not accept EastGroup's proposal at this time because,
to date, Copley had not fully explored its potential strategic alternatives and
there was a reasonable probability that Copley stockholders could receive a
higher value at the completion of a more comprehensive review of such
alternatives. The Board unanimously agreed to allow the EastGroup proposal to
expire and authorized the Copley Special Committee to provide assistance to
Morgan Stanley as necessary in connection with Morgan Stanley's evaluation of
strategic alternatives. At this meeting, the Board reiterated its position that
Copley was not for sale at the present time and that the Board was continuing to
evaluate its options to enhance stockholder value. Copley informed EastGroup by
letter dated June 8, 1995 and publicly announced on that same day, its decisions
to allow EastGroup's proposal to lapse and to proceed with an orderly review of
Copley's strategic alternatives with the assistance of its financial advisor,
Morgan Stanley.
On June 13, 1995, prior to Copley's annual meeting of stockholders, Mr.
Speed approached Mr. O'Connor and requested a meeting between himself and the
Copley Board of Directors after the conclusion of the annual meeting. Mr. Speed
was advised that the Board declined his offer to meet at that time and was
reminded that Copley had engaged Morgan Stanley to evaluate Copley's strategic
alternatives. Mr. O'Connor explained that EastGroup was welcome to submit a
proposal in writing for the Board's consideration and agreed that the Board
would be willing to meet with Mr. Speed after the Board, with the assistance of
its financial and legal advisors, completed its review of Copley.
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At the Copley Board meeting held following the annual stockholder meeting,
representatives of Morgan Stanley summarized the progress of their evaluation of
the company and presented various strategic alternatives available to Copley.
These alternatives included (i) remaining an independent company and continuing
to attempt to raise new capital in a private placement, (ii) merging with an
existing public or private company, and (iii) selling all or substantially all
of its assets in one or a series of transactions and then liquidating the
company. Following a discussion of these alternatives, the Board agreed that
Morgan Stanley should continue to evaluate these alternatives. At this meeting
the Copley Board also discussed Copley's joint venture interests and the concern
that the joint ventures might have a negative impact on the valuation of the
company. As a result of such discussions, the Board directed management to
continue to actively pursue the unwinding of Copley's joint venture arrangements
to enhance stockholder value.
On July 7, 1995, the Copley Board of Directors met with Morgan Stanley and
discussed the status of Morgan Stanley's review of the company and the
methodology and assumptions used in evaluating Copley's strategic alternatives.
During this meeting the Board and management provided input to Morgan Stanley
concerning its methodology and assumptions. At the conclusion of the meeting,
the Board asked Morgan Stanley to prepare for presentation at the Board's next
scheduled meeting in September 1995 its final recommendations concerning its
suggested course of action to be taken to maximize stockholder value.
On July 24, 1995, EastGroup filed with the SEC an amendment to its Schedule
13D disclosing that it had acquired an additional 37,800 Copley Shares, thereby
increasing its holdings in Copley to 6.27% of the outstanding Copley Shares.
On September 6, 1995, the EastGroup Board met. At the meeting, EastGroup
management reviewed with the Board the status of Copley. After discussion, the
EastGroup Board authorized EastGroup management to attempt to meet with Copley
and to make a preliminary proposal in response to any Copley request for
expressions of interest, but that any such proposal should be subject to due
diligence investigation and approval of the Board prior to entering into any
binding agreement with respect to such a transaction.
On September 12, 1995, the Copley Board of Directors met to consider Morgan
Stanley's recommendations to maximize stockholder value. At this meeting, the
representatives of Morgan Stanley summarized the findings from their evaluation
of the company. Morgan Stanley described the criteria used by it to evaluate the
strategic alternatives, which included, among others: the current valuation of
Copley Shares; the ability of Copley to sustain growth given its current assets,
size and market capitalization; the stability of Copley's income stream; the
liquidity available to its stockholders from various strategic alternatives; and
the certainty of consummation of various potential transactions. Morgan Stanley
concluded that the alternative which offered the greatest potential to maximize
stockholder value was the merger of Copley with and into a public or private
entity or the sale of its assets in one or a series of transactions. To maximize
stockholder value, Morgan Stanley recommended that, prior to commencing this
process, Copley continue to unwind its joint venture arrangements and resolve
certain other operational issues. In the opinion of Morgan Stanley, these
actions would likely increase the number of interested bidders and enhance the
value to be received by Copley's stockholders in either a sale of assets or a
business combination transaction. Morgan Stanley then recommended that Copley
implement a two-step process in order to solicit potential bids for the company
and its assets. The first step would be a broad marketing effort designed to
attract as wide and competitive a field of interested parties as possible. The
second step would be to seek more specific proposals from a smaller, pre-
qualified group, whose offers would be evaluated based upon such criteria as
price, form of currency, certainty of consummation of the transactions and tax
impact on the Copley stockholders.
After lengthy discussion, the Board decided to adopt Morgan Stanley's
recommendation to solicit interest from potential acquirors using a two-step
process. The Board also authorized its management, with the assistance of its
financial and legal advisors, to prepare a confidential information package for
distribution to prospective acquirors and to enter into confidentiality
agreements with the potential acquirors. Following the meeting, Copley publicly
announced that it had accepted the recommendation of Morgan Stanley to solicit
the interest of third parties in merging with Copley or acquiring its assets;
however, Copley emphasized that it would not consummate a transaction unless the
price and other terms were in the best interest of the stockholders.
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On September 18, 1995, EastGroup filed with the SEC an amendment to its
Schedule 13D disclosing that it had acquired an additional 304,200 Copley Shares
thereby increasing its holdings in Copley to 14.76% of outstanding Copley
Shares.
The Copley Board met on September 20, 1995 to consider whether to amend
Copley's Rights Agreement to reduce the percentage ownership by a person or
group of persons of Copley Shares required to trigger the protections provided
under the Rights Agreement from 20 percent to 15 percent. Copley's financial and
legal advisors expressed their concern that any single ownership position of
greater than 15 percent might, among other things, discourage potential
acquirors from participating in the bidding process and limit the availability
of certain tax-advantaged transactions. After discussions among the Board and
its legal and financial advisors, the Copley Board of Directors determined that
amending the Rights Agreement was necessary to ensure the orderly conduct of the
company's process of seeking a merger partner or acquiror and the Board thereby
resolved to amend Copley's Rights Agreement to lower the trigger to 15 percent.
Following the September 12, 1995 Copley Board meeting, Morgan Stanley began
the process of soliciting the interest of 98 potential investors in merging with
or acquiring the assets of Copley ("Phase I"). These potential investors were
comprised of publicly traded REITs, private real estate companies, advisors to
pension funds and opportunity funds. As part of such solicitation, Morgan
Stanley distributed to such potential investors introductory offering letters
and copies of Copley's public filings. These potential investors were asked to
execute a standard confidentiality agreement before Morgan Stanley would be
permitted to distribute confidential information packages regarding Copley to
such investors. A total of 46 potential investors executed confidentiality
agreements and received confidential information. In connection with the
distribution of the confidential information packages, these potential investors
were asked to submit indications of interest concerning a possible business
combination with Copley by November 15, 1995 (the "Phase I Bid Date").
At EastGroup's request, the Copley Board along with Ms. Lentz met with Mr.
Speed and Mr. Hoster on September 29, 1995. At this meeting, Mr. Speed and Mr.
Hoster expressed their continued interest in a stock merger between Copley and
EastGroup, although no formal proposal or price was offered, and Mr. Speed
requested that Copley enter into exclusive negotiations with EastGroup regarding
a business combination. The Copley Board declined Mr. Speed's offer to negotiate
exclusively with EastGroup explaining that it believed that exclusive dealings
with any party at this early stage of the bidding process would limit Copley's
ability to maximize stockholder value and thus would not be in the best interest
of the Copley stockholders. The Copley Board again welcomed EastGroup to
participate in the formal bidding process being administered by Morgan Stanley.
On the Phase I Bid Date Morgan Stanley received ten preliminary proposals
to acquire Copley or all of its assets and two preliminary proposals to acquire
particular assets of Copley from prospective investors ("Phase I Bidders"),
including a preliminary proposal from EastGroup proposing a merger between
Copley and EastGroup in which each outstanding Copley Share would be exchanged
for EastGroup Shares having a value between $13.50 and $14.00, subject to due
diligence and negotiation of a definitive merger agreement. The following day,
November 16, 1995, EastGroup filed an amendment to its Schedule 13D disclosing
its Phase I proposal and Copley publicly announced that it had received
preliminary proposals to merge with or acquire the stock or assets of Copley and
that, with the assistance of Morgan Stanley, it was undertaking an orderly
review of the proposals.
The Copley Board met to review the preliminary proposals on November 28,
1995. Three of the proposals involved the purchase of Copley Shares or the
acquisition of Copley by merger, six proposals involved the purchase of
substantially all of Copley's assets, two involved the purchase of certain
specified assets of Copley and one proposal involved a significant
recapitalization of Copley with the issuance of approximately four times the
amount of Copley Shares currently outstanding. After discussions among the Board
and Copley's legal and financial advisors, the Copley Board of Directors
directed Morgan Stanley to continue discussions with the bidders to clarify
their bids and to report to the Board its recommendations as to which of the
bidders should be invited to participate in the second phase of the bidding
process ("Phase II") at a Board meeting to be held on December 1, 1995.
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At the December 1, 1995 meeting, Morgan Stanley presented a status report
on the bidding process including its analysis of the Phase I bids and its
conversations with the Phase I Bidders. At the conclusion of the presentation,
Morgan Stanley recommended that four of the Phase I Bidders (including
EastGroup) be invited to participate in the Phase II bidding process. Following
discussions of the various bids, the Board resolved to authorize Morgan Stanley
to commence the second phase of the bidding process with those four parties;
however, the Board also directed Morgan Stanley to continue its conversations
with certain of the other bidders to clarify their proposals as Morgan Stanley
deemed appropriate in light of the Board's goal of maximizing stockholder value.
At the next Copley Board meeting, which was held on December 18, 1995,
Morgan Stanley updated the Board on its conversations with certain Phase I
Bidders who had not been invited to participate in the Phase II process at the
last Board meeting. With regard to the Phase I Bidder who had proposed a broad
recapitalization of Copley, Morgan Stanley recommended to the Board that this
bidder not be invited to participate in the Phase II process, citing the
substantial time and due diligence expense required to consummate such proposed
recapitalization, the fact that the recapitalization assumed that the Copley
Shares would trade at a premium to Copley's net asset value following such
transaction and the fact that the bidder's alternate proposal to purchase Copley
Shares for cash was at a price below that offered by other bidders. With regard
to another Phase I Bidder, Morgan Stanley informed the Board that this bidder
had revised its preliminary proposal and had raised its offering price. Morgan
Stanley recommended to the Board that, in light of the revised proposal, this
bidder should be invited to participate in Phase II. After discussions among the
Board and its legal and financial advisors and analyses of the bids, the Board
of Directors adopted both of Morgan Stanley's recommendations.
Over an eight week period commencing December 1, 1995, Copley and Morgan
Stanley provided each of the five bidders who were invited to participate in the
Phase II process (the "Phase II Bidders") the opportunity to perform extensive
due diligence on Copley, including examining documentation provided in Copley's
data room in Boston, Massachusetts, touring Copley's properties and interviewing
Copley's management. Also during this time, counsel to the Independent Directors
and Copley prepared a form of stock merger agreement and a form of asset
purchase agreement. As part of the Phase II process, on January 17, 1996, each
of the five Phase II Bidders received a copy of the proposed stock merger
agreement or asset purchase agreement, as applicable, and was asked to submit a
final proposal to Morgan Stanley by January 25, 1996.
A meeting of the EastGroup Board of Trustees was held on January 19, 1996
to consider the terms of a possible Phase II Proposal for Copley. At this
meeting, EastGroup senior management and counsel reviewed with the Board of
Trustees the current operations and properties of EastGroup and Copley, the
previous proposals that EastGroup had made to Copley, the results of a due
diligence investigation with respect to Copley, and certain financial and
valuation analyses of the proposed transaction. EastGroup senior management also
discussed with the Board of Trustees the potential benefits of the Merger to
EastGroup and its shareholders. These included, among others, management's
belief that: (i) the Merger would further EastGroup's strategy of becoming a
REIT concentrating on industrial properties and selected office buildings by
significantly increasing the number of industrial and office properties owned by
the Surviving Company; (ii) the Merger would be accretive (i.e., would cause an
incremental increase) to the projected FFO per share and cash available for
distribution per share of the Surviving Company in 1996 and 1997; (iii) the
Merger would improve the liquidity of the Surviving Company's shares of
beneficial interest, and make EastGroup Shares more attractive to certain
institutional investors in the future; (iv) the Merger would significantly
increase the size of the Surviving Company relative to the size of EastGroup;
and (v) the Merger would lead to ongoing operating synergies and additional cost
savings. EastGroup management also discussed with the EastGroup Board the
potential negative effects of the Merger, including among others: (i) the
Surviving Company's debt obligations after the Merger would be significantly
greater than those of EastGroup; (ii) the significant transaction costs to be
incurred in connection with the Merger; and (iii) the fact that the consummation
of the Merger could cause the acceleration of certain Copley's indebtedness and
potential costs and uncertainties with respect thereto. EastGroup management and
counsel also discussed the proposed merger agreement which had been sent to each
Board member and certain issues with respect to due diligence
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that would have to be satisfied before entering into definitive documentation
with respect to the Merger. Following these discussions, the Board authorized
management to make a proposal for a merger of Copley into EastGroup in which
Copley stockholders would receive $15.60 in EastGroup Shares for each Copley
Share held by them, with the value of EastGroup Shares for purposes of
conversion of the Copley Shares into EastGroup Shares to be determined by a
formula pursuant to which the value of EastGroup Shares would not be less than
$20.50 or exceed $23.00.
Four of the five Phase II Bidders submitted proposals to Morgan Stanley on
January 25, 1996 (including EastGroup). EastGroup's Phase II bid proposed a
merger of Copley into EastGroup wherein Copley's stockholders would receive for
each Copley Share held by them EastGroup Shares based upon a value per Copley
Share of approximately $15.60, subject to certain pricing mechanisms and
EastGroup's review of Copley's disclosure schedules. The other Phase II
proposals involved the acquisition of Copley's real estate assets and, to a
certain extent, the assumption of particular liabilities. The estimated net cash
consideration proposed by such bidders, after adjustments necessary to liquidate
the corporate entity, ranged from $12.81 to $13.81 per Copley Share. Each of
these Phase II Bidders was an advisor to pension funds and each cash acquisition
proposal was subject to, among other things, additional due diligence review and
obtaining requisite investment approvals.
At the January 29, 1996 meeting of the Copley Board of Directors, Morgan
Stanley made a presentation concerning the Phase II bids received by Copley. The
Board was informed that EastGroup was the highest bidder at $15.60 per share.
Morgan Stanley noted, however, that EastGroup's bid contained a collar with a
ceiling value of $23.00 and a floor value of $20.50. Morgan Stanley also noted
that EastGroup's bid did not provide Copley with any downside protection such as
a right to terminate the merger agreement if EastGroup's stock price declined
significantly following the execution of the agreement but prior to consummation
of the merger (a "Walk Away Right"). Copley's financial and legal advisors
advised the Board that Copley should attempt to expand the range of the collar
and that EastGroup would need to agree to a Walk Away Right in order for
EastGroup's bid to be more attractive in relation to the other offers being
considered. The Board also concluded that additional due diligence concerning
EastGroup would have to be conducted before the Board could enter into a
definitive merger agreement. The Board considered the recommendations made by
its advisors and then authorized management and the financial and legal advisors
to meet with EastGroup to discuss the suggested price protections and to conduct
additional due diligence concerning the business and operations of EastGroup.
The Board also directed Morgan Stanley to continue its discussions with other
Phase II Bidders to ascertain whether any of the bidders would be willing to
raise or otherwise clarify their bids.
Mr. Wheeler, Ms. Lentz and Norman de Greve of Copley, Messrs. Speed, Hoster
and McKey of EastGroup, representatives of each of Morgan Stanley and
PaineWebber and each companies' legal counsel met in New York, New York on
February 1, 1996, to explore the possibility of a merger between Copley and
EastGroup. The meeting included a presentation by EastGroup's management of
EastGroup's portfolio, property management and leasing personnel, financial
position and strategic plan. The parties reviewed the potential benefits of the
business combination to EastGroup and Copley and negotiated certain terms of the
Merger Agreement including the collar, the Walk Away Right, the amount of the
termination fee and the conditions under which such fee would be paid, Copley's
ability to address and consider any subsequent acquisition proposals (commonly
referred to as "no-shop provisions") and the indemnification rights and the
amount and terms and conditions of the directors' and officers' liability
insurance which would be provided to Copley's directors after the transaction.
At issue was EastGroup's request to revise the form of merger agreement to,
among other things, provide for a collar (the terms of which are described
above) and to increase the termination fee from $1,000,000 to $1,750,000 and the
reimbursed expenses amount from $250,000 to $500,000. After extensive
negotiations, the parties agreed to a (i) collar with a ceiling value of $23.00
and a floor value of $20.25; (ii) a Walk Away Right at $18.25 with no liability
to Copley; and (iii) a termination fee of $1,500,000 and reimbursed expenses of
$375,000. Also at this meeting, the parties negotiated an exclusivity agreement
whereby Copley agreed to negotiate exclusively with EastGroup for a period of
ten days with the goal of entering into a definitive merger agreement by the end
of such period. This exclusivity agreement was signed on February 2, 1996.
Copley also signed a confidentiality agreement in favor
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of EastGroup on substantially identical terms to the confidentiality agreement
binding EastGroup, so that Copley and its advisors could conduct a more
extensive due diligence review of EastGroup.
During the week of February 5 through February 12, 1996, Copley's
management, representatives of Morgan Stanley, and Copley's accountants and
legal advisors conducted a due diligence review of EastGroup. Such review
included tours of a selected group of EastGroup's properties, evaluations of
sites, reviews of material documentation and discussions with EastGroup's
management regarding the synergies of the combined portfolios. In addition to
the other analyses, Copley and its advisors reviewed certain EastGroup financial
information. During this period counsel to the parties also negotiated the
remaining issues on the Merger Agreement. These negotiations centered primarily
on the covenants of the parties between signing of the definitive merger
agreement and closing, the breadth of certain representations and warranties
involving real property and environmental matters and the scope of the no-shop
provisions.
On February 11, 1996, the Copley Board of Directors met to consider the
proposed merger with EastGroup. Copley's financial and legal advisors summarized
for the Board the background and events leading up to EastGroup's current
proposal to merge with Copley, and also described the due diligence review of
EastGroup performed by Copley's management, Morgan Stanley and their accountants
and legal counsel. The advisors then described the terms of the Merger,
including the pricing mechanisms, the Walk Away Right and break-up fee, and
explained the reasons they believed a possible business combination with
EastGroup would be appropriate for Copley. At this meeting, Morgan Stanley
rendered its oral fairness opinion to the Board of Directors that, as of such
date, based upon the facts and circumstances as they existed at the time, and
subject to certain assumptions, factors and limitations, the proposed stock
consideration was fair, from a financial point of view, to Copley's
stockholders. The Copley Board discussed the advantages and disadvantages to
Copley and its stockholders of the Merger, including the factors raised by the
financial and legal advisors. Following such discussion, the Board of Directors
of Copley unanimously approved the Merger, the proposed Merger Agreement and the
transactions contemplated thereby.
On February 12, 1996, the EastGroup Board of Trustees held a special
meeting to approve the Merger. At the meeting, senior management of EastGroup,
legal counsel and financial advisors updated the Board on the progress of the
transaction since the January 19, 1996 Board meeting. The material changes that
had been made since EastGroup's Phase II proposal were explained by management,
counsel and the financial advisors. Counsel indicated that the Copley Board of
Directors had approved the Merger and that the parties would execute definitive
documentation with respect to the Merger immediately after the EastGroup Board
meeting if the Board of Trustees approved the Merger. Counsel also outlined the
timetable for preparation and filing of disclosure documents with the SEC in the
event the Merger Agreement were executed after the EastGroup Board meeting.
PaineWebber then made a presentation to the Board of Trustees and rendered its
opinion to the Board of Trustees that, based upon the facts and circumstances as
they existed at that time and certain assumptions, factors and limitations, the
Exchange Ratio was fair, from a financial point of view, to EastGroup's
shareholders. After the discussions outlined above, the Board of Trustees of
EastGroup unanimously approved the Merger, the Merger Agreement and the
transactions contemplated by the Merger Agreement.
Copley and EastGroup executed the definitive Merger Agreement on February
12, 1995 and on the following day the parties issued a joint press release
announcing the event.
COPLEY DIRECTORS' REASONS FOR RECOMMENDING THE MERGER
At a special meeting of Copley's Board of Directors held on February 11,
1996, Copley's management and representatives of Morgan Stanley made
presentations concerning the business and prospects of Copley and EastGroup, and
the potential combination of Copley and EastGroup. The Copley Board of Directors
also reviewed the terms of the Merger Agreement with Copley's management and
Copley's financial and legal advisors. BY UNANIMOUS VOTE, THE COPLEY BOARD OF
DIRECTORS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
COPLEY AND ITS STOCKHOLDERS, APPROVED THE MERGER AND AUTHORIZED COPLEY TO ENTER
INTO THE MERGER AGREEMENT AND CONSUMMATE THE TRANSACTIONS CONTEMPLATED THEREBY.
THE COPLEY BOARD OF DIRECTORS
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HEREBY UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF COPLEY APPROVE THE MERGER
AND THE MERGER AGREEMENT.
The Copley Board of Directors believes that the Merger provides an
opportunity for Copley's stockholders to become equity holders in a
self-administered REIT that has an expanded and diversified geographic presence
in the Southeastern and Southwestern United States and that has better access to
the capital markets, greater liquidity and greater potential for long-term
appreciation. The Copley Board of Directors also believes that the Merger will
combine complementary assets of Copley and EastGroup, while enabling the Copley
portfolio to benefit from the reputation of EastGroup's experienced management
team. In addition, the Copley Board of Directors believes that, to the extent
operations of Copley and EastGroup are integrated following the Merger, cost
reductions and other efficiencies will be possible.
In making its determination with respect to the Merger, the Copley Board of
Directors considered a number of factors, including, without limitation, the
factors listed below (all of which were deemed favorable by the Board). In view
of the wide variety of factors considered by the Copley Board of Directors, the
Board did not quantify or otherwise attempt to assign relative weights to the
specific factors considered in making its determination:
(i) the Copley Board believed that the Merger was the best offer
reasonably available for Copley's stockholders. The Board believed that
there were no other prospective purchasers that both had the financial
ability to complete the transaction and would be willing to pay an
aggregate consideration greater than that to be paid by EastGroup in the
Merger. In seeking to maximize value to Copley stockholders, Copley and its
financial advisors solicited the interest of 98 prospective buyers and had
received 46 indications of interest at various times; through a formal
bidding process four definitive proposals were received offering to acquire
Copley or substantially all of its assets. Out of the four final proposals,
EastGroup's proposal offered the highest price on a per share basis,
although its offer involved stock consideration as opposed to cash
consideration offered in the other three proposals. All of the cash
proposals, however, were subject to the respective acquiror obtaining
necessary financing approvals and performing additional due diligence
before committing to their proposed cash offers. See "-- Background of the
Merger."
(ii) possible alternatives to the Merger for enhancing stockholder
value, such as raising additional capital and acquiring new properties. In
this regard, the Board of Directors believed that, at that time, there were
no feasible alternatives that were available to Copley that were as likely
in the near term to provide significant market value appreciation, and that
Copley, as a stand-alone entity, would likely experience difficulty in
accessing the capital markets on acceptable terms in the future.
(iii) information relating to the financial performance, condition,
business operations and prospects of Copley and EastGroup on a separate and
combined basis. Based on the analyses prepared by Morgan Stanley, the
Copley Board believed that the Merger will be accretive to the FFO per
share and cash available for distribution per share of the Surviving
Company. For a discussion of the factors relied on by Morgan Stanley in
preparation of such analyses, see "-- Opinion of the Financial Advisor of
Copley." The Pro Forma Consolidated Financial Statements (Unaudited)
contained herein illustrate the effect of the Merger on net income per
share for the year ended December 31, 1995.
(iv) the anticipated cost savings and operating efficiencies available
to the Surviving Company from the Merger, particularly in the reduction of
overhead expenses and the elimination of Copley's advisory fee. The Copley
Board did not attempt to quantify those savings with precision; however,
Copley notes that EastGroup has estimated that a total of approximately
$848,000 to $904,000 of corporate level general administrative expenses may
be eliminated as a result of the Merger. See "Unaudited Pro Forma
Consolidated Financial Statements of EastGroup Properties."
(v) the terms of the Merger Agreement, including the Exchange Ratio
and the equity interest in the Surviving Company to be received by Copley's
stockholders. In this regard, the Board of Directors noted that the
Exchange Ratio had been determined through arms-length negotiations and
fairly reflected the current market price of the stock of the two
companies. See "Joint Proxy Statement/Prospectus
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Summary -- Market Prices." In addition, Copley's right to terminate the
Merger Agreement if the price of EastGroup Shares is $18.25 or less assures
the Copley stockholders a value of not less than $14.06 per Copley Share in
the Merger and also enables the Copley Board to terminate the Merger
Agreement and explore other strategic alternatives without paying a
break-up fee to EastGroup.
(vi) the structure of the Merger. In this regard, the Board of
Directors viewed as favorable to its determination the fact that the
Merger, as a "stock-for-stock" rather than a "cash-for-stock" transaction,
will provide an opportunity for Copley's stockholders to share in any
future appreciation of the Surviving Company, as well as the fact that the
Merger is intended to enable Copley's stockholders to convert their Copley
Shares into EastGroup Shares on a tax-free basis.
(vii) the size and administrative structures of the Surviving Company.
At the time the Board approved the Merger, the Copley Board believed that
Copley, as a stand-alone, externally-administered REIT with a small market
capitalization as compared to its competitors, would experience difficulty
in accessing the capital markets on acceptable terms in order to fund its
future growth. The Merger with EastGroup will provide an opportunity for
Copley stockholders to become shareholders in a larger REIT which is
self-administered and which likely will have better access to the capital
markets.
(viii) benefits to Copley's stockholders as shareholders in the larger
Surviving Company. The Board viewed as favorable the determination that
Copley's stockholders will likely realize an increase in quarterly dividend
income as shareholders of the Surviving Company, assuming, among other
things, that the Surviving Company will continue to make regular quarterly
distributions at EastGroup's current rate of $0.47 per EastGroup Share and
assuming that there will be sufficient cash available to make such
distributions. For further discussion on this subject see "-- Dividends."
In addition, the total market capitalization of the Surviving Company will
be larger than Copley's current total market capitalization, which may
provide Copley's stockholders with enhanced liquidity.
(ix) the opinion, analyses and presentations of Morgan Stanley
described below under "-- Opinion of the Financial Advisor of Copley,"
including the opinion of Morgan Stanley to the effect that, as of the date
of such opinion, and based upon and subject to certain matters stated
therein, the consideration to be received by the holders of Copley Shares
pursuant to the Merger Agreement was fair from a financial point of view to
such holders. In this respect, the Copley Board of Directors placed special
emphasis on Morgan Stanley's financial analyses in its overall evaluation
of the Merger and viewed such analyses as favorable to its determination.
The Board viewed Morgan Stanley's opinion as favorable to its determination
because Morgan Stanley is an internationally recognized investment banking
firm with experience in the valuation of businesses and their securities in
connection with mergers and acquisitions and in providing advisory services
and raising capital for companies in the real estate industry.
The Copley Board also considered certain potentially negative factors in
its deliberations concerning the Merger:
(i) the risk that EastGroup's portfolio and Copley's portfolio may not
be fully complementary as a result of the Board's view that the average age
of EastGroup's properties is greater and the average quality of EastGroup's
properties is lower in comparison to Copley's properties, that EastGroup's
property types vary from Copley's industrial portfolio and that certain of
EastGroup's investments were made on a co-investment basis;
(ii) the fact that, because the value of EastGroup Shares for purposes
of calculating the ratio at which Copley Shares will be converted into
EastGroup Shares is fixed when the price of EastGroup Shares falls below
$20.25, a decline in the value of EastGroup Shares below $20.25 would
reduce the value of the consideration to be received by Copley's
stockholders in the Merger;
(iii) the various conditions to EastGroup's obligations to consummate
the Merger. See "-- Conditions to the Merger";
(iv) the risk that the anticipated benefits of the Merger to Copley
stockholders may not be realized as a result of possible changes in the
real estate markets in general, the inability to achieve the anticipated
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reductions in expenses, the effect of the factors described in clause (i)
above or the inability of the Surviving Company to access the capital
markets in an efficient manner; and
(v) the fact that, under the terms of the Merger Agreement, Copley and
its directors, officers, employees, agents and representatives would be
prohibited from initiating, soliciting, encouraging, participating in
negotiations or otherwise facilitating a proposal of an acquisition by or
business combination with any other party unless, among other things, the
Copley Board determines, based on the advice of counsel, that such action
is required for the Copley Board to comply with its fiduciary duties to
stockholders under applicable law, and the possibility that Copley may be
required, if the Merger Agreement is terminated under certain
circumstances, to pay EastGroup a termination fee of $1,500,000
(approximately 1.4% of the transaction value) and to reimburse EastGroup
for up to $375,000 of its out-of-pocket expenses incurred in connection
with the Merger. See "-- Termination Amount and Expenses." The Copley Board
recognized that the inclusion of such provisions in the Merger Agreement
would render it unlikely that a more attractive offer for the acquisition
of Copley would be presented to Copley and its stockholders; however, the
Board believes that, based on its efforts to find a buyer for Copley, the
Merger represents the best offer reasonably available to Copley and its
stockholders. In addition, the Copley Board found reasonable the views of
its legal advisors that a 1.4% termination fee was within the range of fees
payable in comparable transactions.
The Copley Board of Directors also was aware of the provisions of the
Merger Agreement affording indemnification and director's insurance to the
directors of Copley for actions and omissions of such persons occurring prior to
the Effective Time. These provisions were important to the Copley Board;
however, this factor did not affect the Copley Board's evaluation or
recommendation of the transaction because such provisions are customary in
agreements relating to business combinations similar to the Merger.
In the view of Copley's Board of Directors, the potentially negative
factors considered by it were not sufficient, either individually or
collectively, to outweigh the positive factors considered by the Board of
Directors in its deliberations relating to the Merger.
In the event the Merger is not consummated for any reason, Copley intends
to continue to pursue its business objectives of maximizing stockholder value.
In addition, Copley may seek another strategic combination or a sale, in one
transaction or a series of transactions, of substantially all of its assets. The
Copley Board of Directors believes there are no feasible alternatives to the
Merger available to Copley at the present time that are likely to result in
greater stockholder value.
OPINION OF THE FINANCIAL ADVISOR OF COPLEY
Copley retained Morgan Stanley to act as Copley's financial advisor in
connection with the Merger and related matters based upon Morgan Stanley's
qualifications, expertise and reputation. At the February 11, 1996 telephone
meeting of the Copley Board, Morgan Stanley rendered an oral opinion to the
Copley Board that, as of such date and subject to the considerations set forth
in such opinion, the consideration to be received by the holders of Copley
Shares pursuant to the Merger Agreement is fair from a financial point of view
to such holders. Morgan Stanley subsequently confirmed its oral opinion by
delivery of a written opinion dated February 12, 1996.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED FEBRUARY 12, 1996,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS JOINT PROXY
STATEMENT/PROSPECTUS (THE "MORGAN STANLEY OPINION") AND IS INCORPORATED HEREIN
BY REFERENCE. HOLDERS OF COPLEY SHARES ARE URGED TO, AND SHOULD, READ THE MORGAN
STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. THE MORGAN STANLEY OPINION IS
DIRECTED TO THE COPLEY BOARD AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL
POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF COPLEY
SHARES PURSUANT TO THE MERGER AGREEMENT, AND IT DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
COPLEY SHARES AS TO HOW TO VOTE AT THE COPLEY MEETING. THE SUMMARY OF THE MORGAN
STANLEY OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
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In arriving at its opinion, Morgan Stanley (i) analyzed certain publicly
available financial statements and other information of Copley, (ii) analyzed
certain internal financial statements and other financial and operating data
concerning Copley and Copley's real property assets prepared by the management
of Copley, (iii) analyzed certain financial projections prepared by the
management of Copley, (iv) discussed the past and current operations and
financial condition and the prospects of Copley and certain of its real property
assets with senior executives of Copley, (v) reviewed the reported prices and
trading activity for the Copley Shares, (vi) compared the financial performance
of Copley and the prices and trading activity of the Copley Shares with that of
certain other comparable publicly-traded companies and their securities, (vii)
reviewed certain publicly available financial statements and other information
of EastGroup, (viii) reviewed certain internal financial statements and other
financial and operating data concerning EastGroup prepared by the management of
EastGroup, (ix) reviewed certain financial projections prepared by the
management of EastGroup; (x) discussed, on a limited basis, the past and current
operations and financial condition and the prospects of EastGroup and certain of
its real property assets with senior management of EastGroup, (xi) reviewed the
reported prices and trading activity of the EastGroup Shares, (xii) compared the
financial performance of EastGroup and the prices and trading activity of the
EastGroup Shares with that of certain other comparable publicly-traded companies
and their securities, (xiii) participated in discussions and negotiations among
representatives of Copley, EastGroup and their financial and legal advisors,
(xiv) reviewed the Merger Agreement and certain related documents, and (xv)
performed such other analyses as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of this opinion. With respect to the
financial projections, Morgan Stanley assumed that such projections have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of Copley and of EastGroup.
Morgan Stanley did not make any independent valuation or appraisal of the assets
or liabilities of Copley or of EastGroup. The Morgan Stanley Opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to Morgan Stanley as of, February 12, 1996.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Copley Board in connection with the preparation of
the Morgan Stanley Opinion and with its oral presentation to the Copley Board on
February 11, 1996:
Capitalization Rate Valuation Analysis. The Capitalization Rate Valuation
Analysis assumes that the value of a company owning income-producing real estate
can be determined with reference to the value of individual properties in such
company's portfolio. In general, Morgan Stanley applied capitalization rates to
the projected 1995 net operating income ("Net Operating Income" defined as
revenues less property operating expenses including property level management
expenses, before interest expense and depreciation) of each of the Copley
properties in the pro forma entity since the beginning of 1995 and considered
the value of certain undeveloped land. Morgan Stanley applied a range of
capitalization rates of 9.5%-16.0% for a base case valuation and 9.0%-15.5% for
a high case valuation to the Net Operating Income of the properties. The
resulting total valuation was between $102,227,092 and $108,326,453. The
resulting total value, before the value of the land, reflected an overall
capitalization rate of between 11.9%-11.3% on the Net Operating Income used.
This valuation range produced equity values for Copley of $12.12 to $13.51 per
Copley Share, after the subtraction of third party debt, a two-percent capital
reserve discount and the estimated value of partner's interests in the
properties and adjustments for estimated corporate assets and corporate
liabilities at closing, an estimate of certain transaction costs, and
considering other transaction costs and the value of a property acquired in
1995.
Selected Comparable Public Companies Analysis. Using publicly available
information, Morgan Stanley compared selected historical and projected
financial, operating and stock market performance data of Copley and EastGroup
to the corresponding data of certain publicly-traded companies that Morgan
Stanley considered comparable in certain respects with that of Copley and
EastGroup for purposes of this analysis. The comparables consisted of industrial
and office/industrial REITs or REITs with diversified property types which
included industrial or office components. Morgan Stanley considered Copley and
EastGroup with
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relation to a set of both large capitalization comparables (the "Large
Capitalization Comparables") with larger average market values and small
capitalization comparables (the "Small Capitalization Comparables") with smaller
average market values of equity. The Large Capitalization Comparables consisted
of Crescent Real Estate Equities, Duke Realty Investments, First Industrial
Realty, Liberty Property Trust, Security Capital Industrial Trust and Spieker
Properties. The Small Capitalization Comparables consisted of Bedford Property
Investors, Inc., Centerpoint Properties Corp., MGI Properties, Pacific Gulf
Properties, Inc., Reckson Associates Realty Corp. and Weeks Corporation. Morgan
Stanley compared Copley with a subset of the Small Capitalization Comparables
which it deemed comparable for purposes of this analysis to Copley's small
equity market capitalization and/or high leverage which included Bedford
Property Investors, Inc., MGI Properties and Pacific Gulf Properties. The 1995
and 1996 FFO multiples for all of the comparables were based on first call
estimates as of February 2, 1996 and the February 7, 1996 closing stock prices.
Copley's FFO estimates were based on internal projections. Morgan Stanley noted
that EastGroup's $15.60 per share offer represented a 10.6x and 9.9x FFO
multiple on Copley estimated 1995 and 1996 FFO per share, respectively, which
was higher than the weighted average FFO multiple of this subset of comparables
of 10.3x and 9.5x for 1995 and 1996, respectively, and within the range of 1995
and 1996 FFO multiples for the Small Capitalization Comparables as a whole of
9.9x-14.3x and 9.3x-12.7x, respectively. Morgan Stanley noted that Copley's
unaffected market capitalization was smaller than those in the subset of
comparables, and Copley's leverage was higher than all but one of those in the
subset of comparables. Morgan Stanley noted that these characteristics may be
viewed negatively by the public market.
With respect to EastGroup, Morgan Stanley compared EastGroup's FFO multiple
to the median FFO multiple for the comparables for the time periods given. The
FFO multiples for EastGroup for the year ended December 31, 1995 and the year
ended December 31, 1996 were based on EastGroup projections. In calculating the
FFO multiples for the periods, the February 7, 1996 closing stock prices of
EastGroup and the comparable companies were used. Morgan Stanley noted that
EastGroup's 9.2x multiple of 1995 FFO and 8.9x multiple of 1996 FFO were below
the weighted average FFO multiples of both the Large Capitalization Comparables
and Small Capitalization Comparables of 12.8x, 11.6x and 12.1x, 10.9x,
respectively. Morgan Stanley considered the Small Capitalization Comparables to
be most comparable to EastGroup.
Stock Trading History. Morgan Stanley reviewed the history of trading
prices and volume for Copley Shares and EastGroup Shares, both separately and in
relation to the Standard & Poor's 500 Index and an index of industrial and
office/industrial REIT's which was composed of Centerpoint Properties, Crescent
Real Estate, Duke Realty Investments, First Industrial Realty Trust, Liberty
Property Trust, Security Capital Industrial, Spieker Properties and Weeks
Corporation. In addition, Morgan Stanley reviewed the historical three year
trading price history of Copley and the one year historical unaffected trading
range of Copley Shares (defined as the Copley Share price prior to the
initiation of EastGroup's purchases of Copley Shares; this was used to attempt
to isolate a public market value unaffected by a premium from acquisition
speculation) to the potential consideration to Copley stockholders possible
under various scenarios under the purchase price mechanism "collar" more fully
described in the Merger Agreement. See "-- Conversion Terms of the Merger."
Contribution Analysis. Morgan Stanley reviewed Copley's and EastGroup's
financial contribution to the combined entity on a projected pro forma basis. On
a pro forma basis, Copley's stockholders are retaining 37.9%, based upon an
Exchange Ratio of .7214, of the ownership in the combined company. Based on
Copley's management's financial projections for 1996 through 1998 and
EastGroup's management's financial projections for the same period, Copley would
contribute 34.7% of the FFO of the combined company and 42.0% of the
property-level Net Operating Income of the combined company. Morgan Stanley
noted that Copley's stockholders will receive a greater percentage of the stock
than would theoretically be indicated by their contribution of FFO and a lesser
percentage of the stock of the combined entity than would theoretically be
indicated by Copley's contribution of property-level net operating income. With
regard to the latter, Morgan Stanley noted that the contribution analysis is
impacted by the level of debt on Copley's and EastGroup's balance sheets.
Specifically, the greater percentage of debt in Copley's capital structure
finances greater net operating income but reduces relative FFO due to service
costs of the debt. Based on projections provided to Morgan Stanley by Copley and
the September 30, 1995 debt outstanding for EastGroup, Copley's
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ratio of debt to total book capitalization was 65.9% while EastGroup's ratio of
debt to total book capitalization was 48.3%.
Pro Forma Merger Analysis. Morgan Stanley performed an analysis of the
effect of the Merger on EastGroup's FFO per share for the projected years ended
December 31, 1995 through December 31, 1999, which assumed that the Merger had
been consummated on January 1, 1995. Morgan Stanley combined the projected
operating results of Copley, based on Copley's internal estimates, with the
corresponding projected operating results of EastGroup, based on EastGroup's
internal estimates, to arrive at the combined company projected FFO. Morgan
Stanley's analysis was based upon an Exchange Ratio of .7214 and certain annual
synergistic savings from the Merger, arising primarily from savings in
duplicative public company and general and administrative expenses. Morgan
Stanley then compared the combined company FFO per share to Copley's stand-alone
FFO per share to determine the projected pro forma impact of the Merger on
EastGroup's FFO per share. This analysis indicated that the pro forma impact of
the Merger was accretive to EastGroup's FFO per share in 1995, 1996, 1997 and
1998. Morgan Stanley noted that the Merger would result in an increased dividend
for Copley stockholders, based on EastGroup's maintenance of its current $0.47
quarterly dividend per share and based upon a .7214 Exchange Ratio.
Morgan Stanley noted that the Merger resulted in a slight increase in the
leverage ratios and slight decrease in the debt service coverage ratios for
EastGroup, and an improvement in these ratios for Copley stockholders in the
surviving entity. Specifically, EastGroup's total debt to book capitalization
(debt plus stockholders equity) increased from 48.3% to 54.8% while FFO to total
debt decreased from 2.8x to 2.6x. Copley's total debt to book capitalization and
FFO to total debt will decrease and increase, respectively, from 65.9% and 2.2x.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In addition,
Morgan Stanley may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for a particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of Copley and EastGroup.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Copley and EastGroup. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
value, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as a part of Morgan Stanley's
analysis of whether the consideration to be received by the holders of Copley
Shares pursuant to the Merger Agreement is fair from a financial point of view
to such holders, and were conducted in connection with the delivery of the
Morgan Stanley Opinion. The analyses do not purport to be appraisals or to
reflect the prices at which Copley might actually be sold. Because such
estimates are inherently subject to uncertainty, none of Copley, Morgan Stanley,
or any other person assumes responsibility for their accuracy. In addition, as
described above, the Morgan Stanley Opinion and the information provided by it
to the Copley Board were two of the factors taken into consideration by the
Copley Board in making its determination to approve the Merger Agreement and the
transactions contemplated thereby. Consequently, the Morgan Stanley analyses
described above should not be viewed as determinative of the opinion of the
Copley Board or the view of Copley management with respect to the value of
Copley or of whether the Copley Board or the management of Copley would have
been willing to agree to different considerations. The consideration to be
received by the holders of Copley Shares pursuant to the Merger Agreement was
determined through negotiations between Copley and EastGroup and was approved by
the Copley Board.
The Copley Board retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. As part of its investment banking business, Morgan Stanley is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and
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unlisted securities, private placements and valuation for estate, corporate and
other purposes. In the ordinary course of its business, Morgan Stanley and its
affiliates may actively trade the debt and equity securities of Copley and
EastGroup for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Pursuant to a letter agreement dated May 16, 1995, as amended between
Copley and Morgan Stanley, Morgan Stanley is entitled to (i) an advisory fee
estimated to be approximately $300,000 plus expenses, which is currently
payable, and (ii) a transaction fee of $1,500,000 including expenses, which is
payable upon consummation of the Merger. Any advisory fee, including expense
reimbursements paid to Morgan Stanley will be credited against the transaction
fee. In addition, Copley has agreed to indemnify Morgan Stanley and its
affiliates against certain liabilities and expenses, including liabilities under
Federal securities laws.
EASTGROUP TRUSTEES' REASONS FOR EFFECTING THE MERGER
The Board of Trustees of EastGroup believes that the Merger is fair to and
in the best interests of EastGroup and its shareholders. ACCORDINGLY, THE BOARD
OF TRUSTEES OF EASTGROUP HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT ITS SHAREHOLDERS APPROVE THE MERGER
AND THE MERGER AGREEMENT. In reaching this determination, the Board of Trustees
of EastGroup consulted with EastGroup management, as well as its financial
advisors, legal counsel and accountants, and considered a number of factors. The
material factors considered by EastGroup's Board of Trustees in reaching the
foregoing conclusions are described below.
In making its determination with respect to the Merger, the EastGroup Board
considered the following factors, all of which the Board deemed favorable, in
approving the Merger and the Merger Agreement:
(i) The Merger would significantly increase the amount of property
owned by EastGroup. In this regard, the Board noted that following the
Merger, the Surviving Company would own 32 industrial and office properties
comprising approximately 5,000,000 square feet of rentable space in eight
states. See "-- Surviving Company." The EastGroup Board believed that the
Merger and resulting acquisition of Copley's portfolio of industrial and
office properties (i) was in furtherance of EastGroup's strategy of
acquiring industrial properties and (ii) would position the Surviving
Company as a REIT concentrating on investments in industrial properties and
selected office buildings. The Board also believed that the addition of
Copley's properties, with their strong base in California and Arizona, to
the portfolio of the Surviving Company complemented EastGroup's investments
concentrated primarily in Florida and Texas.
(ii) The Board reviewed information relating to the financial
performance, business operations and prospects of Copley and EastGroup and
current industry, economic and market conditions. In this regard, the
EastGroup Board placed special emphasis on, and viewed as favorable to its
determination, analysis of EastGroup's management and PaineWebber which
indicated that the Merger would be accretive to the Surviving Company's FFO
per share and cash available for distribution per share in 1996 and 1997.
(iii) The total market capitalization of the Surviving Company would
increase as a result of the Merger. For example, the total market
capitalization of the Surviving Company as of December 31, 1995 would be
approximately $273,000,000, which is considerably greater than EastGroup's
total market capitalization of $167,000,000 on such date. Based in part on
discussions with advisors, investment banking firms and lenders, the Board
of Trustees believed that this increased total market capitalization would
provide EastGroup shareholders with enhanced liquidity and would make
EastGroup Shares a more attractive investment for institutional investors,
thereby enhancing EastGroup's ability to raise additional equity capital in
the future. Therefore, the Board viewed the increase in the total market
capitalization of the Surviving Company as favorable.
(iv) The Merger would lead to on-going operating synergies and
additional cost savings, initially estimated to be between $848,000 and
$904,000 per annum prior to the offset of the one-time costs associated
with the Merger (which costs are estimated to be approximately $3,400,000.
See "Joint Proxy
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Statement/Prospectus Summary -- Unaudited Pro Forma Consolidated Selected
Financial Data." The Board believed that the opportunities for economies of
scale and operating efficiencies would result in significant savings for
annual general and administrative costs and property operating costs,
particularly due to the integration of office facilities, information
systems and support functions, the elimination of Copley's external
advisory relationship and savings resulting from Copley no longer being a
separate public company. Thus, the Board viewed this factor as favorable.
(v) The Merger could be effected through the issuance of EastGroup
Shares, rather than through the use of cash or a public offering of equity
or debt securities, which the Board of Trustees viewed as favorable.
(viii) The opinion, analyses and presentations of PaineWebber
described below under "-- Fairness Opinion of EastGroup's Financial
Advisor," including the opinion of PaineWebber to the effect that, as of
the date of such opinion and based upon and subject to certain matters
stated therein, the Exchange Ratio was fair from a financial point of view
to the holders of EastGroup Shares. In this respect, while the EastGroup
Board of Trustees did not explicitly adopt PaineWebber's financial
analyses, the EastGroup Board of Trustees placed special emphasis on such
analyses in its overall evaluation of the Merger and viewed such analyses
as favorable to its determination. The Board viewed PaineWebber's opinion
as favorable to its determination because PaineWebber is an internationally
recognized investment banking firm with experience in the valuation of
businesses and their securities in connection with mergers and acquisitions
and in providing advisory services and raising capital for companies in the
real estate industry.
The Board also considered the following factors, all of which the Board
considered negative, in its deliberations concerning the Merger:
(i) The significant transaction costs involved in connection with
consummating the Merger (estimated at approximately $3,400,000) and the
substantial management time and effort required to effectuate the Merger
and to integrate the businesses of EastGroup and Copley. See "Joint Proxy
Statement/Prospectus Summary -- Unaudited Pro Forma Consolidated Selected
Financial Data."
(ii) The Surviving Company's debt obligations after the Merger would
increase significantly (aggregating approximately $131,594,000 as compared
to $71,562,000 for EastGroup as of December 31, 1995). The increase in the
Surviving Company's ratio of debt to total market capitalization to
approximately 48.2% as compared to 42.9% for EastGroup as of December 31,
1995 could adversely affect the market for the Surviving Company's shares
or inhibit the Surviving Company's ability to raise capital and issue
equity in both the public and private markets. See "Risk
Factors -- Substantial Debt Obligations."
(iii) The fact that the consummation of the Merger could cause the
acceleration of certain of Copley's indebtedness and the potential costs
and uncertainties with respect thereto. See "Risk Factors -- Merger Could
Cause Acceleration of Copley Indebtedness."
(iv) The benefits of the transaction to be received by certain
affiliates of Copley. See "Risk Factors -- Benefits to Copley Affiliates."
(v) The risk that the anticipated benefits of the Merger might not be
fully realized.
In the opinion of the EastGroup Board, the factors listed above represent
the material potential risks and adverse consequences to EastGroup's existing
shareholders which could occur as a result of the transaction. In considering
the Merger, the Board considered the impact of these risks and consequences on
EastGroup's existing shareholders. In the opinion of the EastGroup Board,
however, these potential risks and consequences were outweighed by the potential
positive factors considered by the Board which are described above. Accordingly,
the EastGroup Board voted to approve the Merger and the Merger Agreement.
In view of the wide variety of factors considered by the EastGroup Board of
Trustees, the EastGroup Board of Trustees did not quantify or otherwise attempt
to assign relative weights to the specific factors considered in making its
determination.
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In the event the Merger is not consummated for any reason, EastGroup will
continue to pursue its business objectives of (i) increasing its size and total
market capitalization in a manner which the Board of Trustees believes is in the
best interest of EastGroup shareholders, (ii) maximizing FFO, cash available for
distribution and distributions per EastGroup Share, (iii) acquiring industrial
and office properties whether by acquisitions of individual properties or
business combination transactions, and (iv) holding its properties as long-term
investments.
FAIRNESS OPINION OF EASTGROUP'S FINANCIAL ADVISOR
EastGroup retained PaineWebber on April 21, 1995 to render financial
advisory services in connection with a possible business combination with
Copley. In connection with the engagement, EastGroup asked PaineWebber to render
an opinion as to whether the Exchange Ratio was fair, from a financial point of
view, to the holders of EastGroup Shares. The Exchange Ratio was determined
through negotiations between EastGroup and Copley.
The Board of Trustees of EastGroup retained PaineWebber to act as its
advisor based upon PaineWebber's prominence as an investment banking and
financial advisory firm with experience in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes especially with respect to REITs and other
real estate companies.
On February 12, 1996, PaineWebber delivered its written opinion to the
Board of Trustees of EastGroup to the effect that, as of the date of such
opinion, based on PaineWebber's review and subject to the limitations described
below, the Exchange Ratio was fair, from a financial point of view, to the
holders of EastGroup Shares. PaineWebber has confirmed such opinion by delivery
of a written opinion dated as of the date of this Joint Proxy
Statement/Prospectus. The PaineWebber opinion does not constitute a
recommendation to any shareholder of EastGroup as to how any such shareholder
should vote on the Merger. Additionally, the PaineWebber opinion does not
address the business decision of the Board of Trustees of EastGroup to acquire
Copley pursuant to the Merger.
EASTGROUP SHAREHOLDERS ARE URGED TO READ THE PAINEWEBBER OPINION (A COPY OF
WHICH IS ATTACHED AS APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS)
CAREFULLY AND IN ITS ENTIRETY.
In connection with its opinion, PaineWebber reviewed the Merger Agreement
dated February 12, 1996 and also reviewed certain financial and other
information that was publicly available or furnished to PaineWebber by or on
behalf of EastGroup and Copley, including certain internal analyses, financial
forecasts, reports and other information prepared by their respective
managements, as well as certain modifications made by EastGroup to the
information provided by Copley and its management. PaineWebber held discussions
with senior management of EastGroup and with senior management of Copley
concerning their respective historical and current operations, financial
condition and prospects. PaineWebber also considered such other information,
financial studies, analyses and investigations and reviewed such other factors
as PaineWebber deemed appropriate for purposes of its opinion.
In preparing its opinion, PaineWebber relied on the accuracy and
completeness of all information supplied or otherwise made available to
PaineWebber by EastGroup and Copley, and PaineWebber did not assume any
responsibility to independently verify such information or undertake an
independent appraisal of the assets of EastGroup or Copley. With respect to the
financial forecasts examined by PaineWebber, PaineWebber assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the respective managements of EastGroup and Copley
as to the future performance of EastGroup and Copley, respectively, and their
respective properties; and PaineWebber assumed that the modifications made by
EastGroup to the Copley financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
EastGroup's management as to the future performance of Copley and its
properties. PaineWebber assumed, with EastGroup's consent, that all material
assets and liabilities (contingent or otherwise, known or unknown) of EastGroup
and Copley were as set forth in their respective consolidated financial
statements. PaineWebber also assumed, at
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EastGroup's direction, that all consents of Copley's lenders required to
complete the Merger will be obtained, and that EastGroup will not be required to
prepay any indebtedness of Copley as a result of the Merger or, alternatively,
that EastGroup will be able to refinance such indebtedness on the same terms
without payment of prepayment penalties. The PaineWebber opinion was based upon
economic, monetary and market conditions existing on the date thereof.
Furthermore, PaineWebber expressed no opinion as to the price or trading range
at which the EastGroup Shares will trade in the future.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
the application of those methods to the particular circumstances, and therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Accordingly, PaineWebber believes that its analysis must be
considered as a whole and that considering any portion of the analysis and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete picture of the process underlying the
PaineWebber opinion. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty and neither EastGroup nor PaineWebber assumes
responsibility for the accuracy of such analyses or estimates. The following
paragraphs summarize the significant quantitative and qualitative analyses
performed by PaineWebber in arriving at its opinion.
Discounted Cash Flow Valuation. The discounted cash flow valuation
assumes, as a basic premise, that the value of any real estate business can be
determined with reference to the current value of the future cash flow that the
real estate assets will generate for their owners. PaineWebber used projections
and other information supplied by the managements of EastGroup and Copley to
estimate the free cash flow of Copley's real estate portfolio (defined as
revenues less property operating expenses, real estate taxes, capital
expenditures and estimated incremental general and administrative costs) for the
years 1996 through 2006, inclusive, using discount rates ranging from 11.0% to
12.5% and assuming a May 31, 1996 closing date for the Merger. PaineWebber
estimated the terminal value of Copley's real estate portfolio by taking
estimated free cash flow in 2006, adding back estimated capital expenditures for
that year and subtracting a normalized capital expenditure figure (the average
of estimated capital expenditures for the 11 year period ending in 2006) and
applying terminal value capitalization rates ranging from 9.5% to 11.0% to the
resulting total. PaineWebber then discounted the range of terminal values back
to the assumed closing date at discount rates ranging from 11.0% to 12.5%, the
same discount rates used in valuing the free cash flow. PaineWebber then added
together the range of present values of the free cash flow and the range of
present values of terminal value, making certain adjustments to account for
certain other assets and liabilities of Copley and for the expected sale of
certain land currently held by Copley, and subtracting Copley's projected debt
balance to arrive at a discounted cash flow valuation for Copley's equity. The
discounted cash flow valuation produced ranges of values for Copley's equity of
$55.6 million to $73.5 million, or $15.51 to $20.50 per share. PaineWebber
observed that the $15.60 per share value to be paid to Copley stockholders in
the Merger was within the range produced by the discounted cash flow valuation
of Copley's equity. Accordingly, PaineWebber noted that this analysis supported
its conclusions.
Selected Transactions Analysis. PaineWebber reviewed the financial terms,
to the extent publicly available, of five pending or completed mergers between
publicly-traded REITs (the "Selected Transactions"). PaineWebber calculated
various financial multiples and the premium over market price based on certain
publicly available information for each of the Selected Transactions and
compared them to corresponding multiples and premiums for the Merger and the
consideration to be paid to Copley stockholders in the Merger. The Selected
Transactions included the following pending or completed transactions: (i) Holly
Residential Properties, Inc. acquisition by Wellsford Residential Trust, (ii)
America First REIT, Inc. acquisition by Mid-America Apartment Communities, Inc.,
(iii) McArthur/Glen Realty Corp. acquisition by Horizon Outlet Centers, Inc.,
(iv) Real Estate Investment Trust of California proposed acquisition by BRE
Properties, Inc., and (v) Tucker Properties Corporation proposed acquisition by
Bradley Real Estate, Inc. For purposes of comparison, PaineWebber utilized the
latest twelve months' data for each of the Selected
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Transactions and pro forma projected 1995 data for Copley. Because Copley's real
estate portfolio has changed significantly during 1995, PaineWebber did not
believe it was appropriate to use actual 1995 results for Copley for that
portion of 1995 for which such results were available. Accordingly, PaineWebber
used pro forma projected 1995 results for Copley (the "Copley 1995 Pro Forma
Projections"), which were produced by Copley management (and reviewed and
approved by EastGroup management) under the assumption that Copley had owned
only its current portfolio for all of 1995. PaineWebber made certain adjustments
to the Copley 1995 Pro Forma Projections to eliminate Copley's increased costs
associated with its review of strategic alternatives and with the Merger.
PaineWebber noted the multiple of equity purchase price to latest twelve months'
FFO ranged from 7.5x to 14.8x (with a median of 10.1x) for the Selected
Transactions, versus a multiple of 10.9x for the Merger. PaineWebber further
noted that the multiples of total purchase price (equity purchase price plus
assumptions of debt) to net operating income (defined as revenues less property
operating expenses, before general and administrative expenses, interest
expense, depreciation and amortization) ranged from 9.9x to 12.9x (with a median
of 11.9x) for the Selected Transactions, versus a multiple of 9.8x for the
Merger. PaineWebber further noted that the multiples of total purchase price to
EBITDA ranged from 10.5x to 15.4x (with a median of 12.6x) for the Selected
Transactions, versus a multiple of 10.8x for the Merger. PaineWebber further
noted that the Selected Transactions were effected or were proposed to be
effected at premiums ranging from 6.7% to 45.9% over market price seven days
prior to the public announcement of such transactions, with a median of 8.2%,
versus a premium of 38.7% for the Merger. PaineWebber calculated the premium for
the Merger based on the market price of Copley Shares seven days prior to the
date that Copley announced that it had accepted the recommendation of Morgan
Stanley to solicit indications of interest in the acquisition of Copley.
PaineWebber observed that the multiples and premiums for the Merger were within
the ranges established by the Selected Transactions. PaineWebber then applied
the median multiples for the Selected Transactions to Copley's pro forma
projected 1995 results and the median premium to Copley's pre-announcement
market price, to arrive at a theoretical range of per share values for Copley.
The range of values produced by this method was $12.17 to $22.62 per share.
PaineWebber observed that the $15.60 per share value to be paid to Copley
stockholders in the Merger was within the range produced by the Selected
Transactions Analysis. Accordingly, PaineWebber noted that this analysis
supported its conclusions.
Selected Comparative Public Companies Analysis. Using publicly available
information, PaineWebber compared selected historical and projected financial,
operating and stock market performance data of Copley to the corresponding data
of certain publicly-traded companies that PaineWebber considered comparative
(the "Comparative Companies"). The Comparative Companies represented REITs which
focused on ownership of suburban office and industrial properties. These
companies consisted of Bedford Property Investors, Inc., Crocker Realty
Investors, Cali Realty Corporation, Centerpoint Properties Corporation, Duke
Realty Investments, First Industrial Realty Trust, Inc., Highwoods Properties,
Inc., Liberty Property Trust, Reckson Associates Realty Corporation and Weeks
Corporation.
PaineWebber derived a range of per share values for Copley by applying
Copley's FFO per share for three selected time periods to the corresponding
median FFO multiple for the Comparative Companies for those same periods. The
three periods selected were the years ended December 31, 1995, 1996 and 1997.
For 1995, PaineWebber used the Copley 1995 Pro Forma Projections, adjusted as
described above. FFO per share for the years ended December 31, 1996 and 1997
reflected projected results for Copley, as modified by EastGroup management and
adjusted to eliminate projected increased costs associated with Copley's review
of strategic alternatives and with the Merger. The FFO multiples for the
Comparative Companies were based on average first call FFO estimates for the
Comparative Companies for each of the respective periods. In calculating the FFO
multiples for the three selected periods, the February 9, 1996 closing stock
prices of the Comparative Companies were used. PaineWebber observed that (i) the
FFO multiples for the Comparative Companies for the year ended December 31, 1995
ranged from 10.2x to 14.3x, with a median of 11.9x, (ii) the FFO multiples for
the Comparative Companies for the year ended December 31, 1996 ranged from 9.3x
to 12.7x, with a median of 10.6x, and (iii) the FFO multiples for the
Comparative Companies for the year ended December 31, 1997 ranged from 9.2x to
11.0x, with a median of 10.1x.
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Per share values for Copley were computed by multiplying Copley's projected
FFO per share by the median FFO multiple for the Comparative Companies for the
years ended December 31, 1995, 1996 and 1997. The values produced by this method
were $17.07, $16.62 and $16.60 per share for the years ended December 31, 1995,
1996 and 1997, respectively. PaineWebber observed that the $15.60 per share
value to be paid to Copley stockholders in the Merger was below the range
produced by the Selected Comparative Public Companies Analysis. Accordingly,
PaineWebber noted that this analysis supported its conclusions.
Stock Trading History. PaineWebber reviewed the history of trading prices
and volume for EastGroup Shares and Copley Shares separately and reviewed the
trading history of the Copley Shares in relation to the Standard and Poor's 500
Index, an index comprised of the Comparative Companies and the PaineWebber REIT
Index. The PaineWebber REIT Index includes 92 equity REITs representing every
proper category, including retail, multifamily, commercial, mixed and lodging.
In addition, PaineWebber reviewed the historical implied exchange ratio between
Copley and EastGroup and compared this to the range of possible exchange ratios
for the Merger. PaineWebber noted that, with the exception of a brief period of
time in 1993, the historical exchange ratio has been below the range of possible
exchange ratios.
Pro Forma Merger Analysis. PaineWebber performed an analysis of the effect
of the Merger on EastGroup's FFO per share for 1995 through 1997, based on
projections and other information supplied by the managements of EastGroup and
Copley, including the Copley 1995 Pro Forma Projections. The Pro Forma Merger
Analysis assumed a closing of the Merger on January l of each year presented.
PaineWebber combined the projected results of EastGroup with the projected
results of Copley to arrive at projected FFO for the combined company.
PaineWebber assumed an Exchange Ratio of 0.7091 (the Exchange Ratio implied by
EastGroup's closing share price on February 9, 1996, assuming such price were
equal to the EastGroup Stock Price for purposes of calculating the Exchange
Ratio) and annual synergistic savings of $848,000 to $904,000, reflecting
primarily elimination of Copley's advisory fee and duplicative public company
and general and administrative expenses. PaineWebber also eliminated from
EastGroup's projected FFO the benefit of the annual dividend on the Copley
Shares held by EastGroup. PaineWebber then compared the resulting pro forma FFO
per share in each year to EastGroup's projected stand-alone FFO per share. This
analysis indicated that the pro forma impact of the Merger was accretive to
EastGroup's FFO per share in 1995, 1996 and 1997.
While PaineWebber noted that the Merger was accretive on a pro forma basis,
PaineWebber also noted that the Merger would increase EastGroup's ratio of debt
to total market capitalization. Specifically, PaineWebber noted that this ratio
would increase from approximately 42.0% to approximately 46.7% on a pro forma
basis. Notwithstanding the increase in leverage, PaineWebber noted that the Pro
Forma Merger Analysis supported its conclusions.
Contribution Analysis. PaineWebber reviewed EastGroup's and Copley's
financial contribution to the combined company on a projected pro forma basis.
In order to properly reflect the pro forma contribution of both EastGroup and
Copley to the combined company, PaineWebber adjusted EastGroup's and Copley's
contribution of FFO and net operating income to the combined company to reflect
(on a pro rata basis) EastGroup's current ownership of 529,000 Copley Shares.
Based on a purchase price of $15.60 for Copley Shares not currently owned by
EastGroup and assuming an Exchange Ratio of 0.7091 for the Merger, PaineWebber
noted that on a pro forma basis, Copley stockholders (other than EastGroup) will
receive approximately 33.9% of the combined company. Using projected FFO and net
operating income results for the years ended December 31, 1995, 1996 and 1997,
and without attributing potential synergistic savings from the Merger,
PaineWebber calculated that portion of Copley represented by stockholders other
than EastGroup would contribute on average approximately 30.5% of the FFO of the
combined company and approximately 34.9% of the net operating income of the
combined company. PaineWebber noted that this contribution of FFO and net
operating income was generally consistent with the percentage of shares in the
combined company which Copley stockholders (other than EastGroup) will receive
in the Merger. Accordingly, PaineWebber noted that this analysis supported its
conclusions.
Pursuant to an engagement letter dated April 21, 1995, PaineWebber will
receive a fee of $250,000 for delivery of its opinion. In addition, PaineWebber
has received $250,000 for financial advisory services provided
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to EastGroup to date in connection with the Merger and will receive an
additional fee of $625,000 for financial advisory services upon completion of
the Merger. PaineWebber will also be reimbursed for certain of its expenses, in
an amount not to exceed $75,000 without the approval of EastGroup. EastGroup has
also agreed to indemnify PaineWebber, its affiliates and their respective
directors, officers, employees, agents and controlling persons against certain
liabilities, including liabilities under federal securities laws.
In the past, PaineWebber and its affiliates have provided financial
advisory services and investment banking services to EastGroup and received fees
for the rendering of these services. PaineWebber may actively trade the
securities of EastGroup and Copley for its own account and for the accounts of
its customers and, accordingly, PaineWebber may at any time hold long or short
positions in such securities.
OPERATIONS FOLLOWING THE MERGER
If the Merger Agreement is approved by the stockholders of Copley and the
shareholders of EastGroup, EastGroup will be the surviving corporation, and
Copley will merge with and into EastGroup, which will succeed to all of the
assets and liabilities of Copley. EastGroup, both directly and through its
subsidiaries, will continue to actively seek new investment properties to add to
its portfolio of real estate properties. See "Information Concerning EastGroup."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary addresses the material United States federal income
tax consequences of the Merger. However, the summary does not address all
aspects of federal income taxation that may be relevant to Copley stockholders
in light of their particular circumstances or to certain types of stockholders
subject to special treatment under the federal income tax laws (such as dealers
in securities, tax-exempt organizations, life insurance companies, other
financial institutions, partnership or other pass-through entities, regulated
investment companies and foreign taxpayers).
No foreign, state or local income tax considerations, or federal, state,
local or foreign estate or gift tax considerations are addressed herein. This
discussion is based upon an opinion rendered by Jaeckle, Fleischmann & Mugel,
counsel to EastGroup, and an opinion rendered by Hale and Dorr, counsel to
Copley. The opinions are based upon certain assumptions and subject to certain
limitations and qualifications as noted in the opinions.
COPLEY STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
The following summary is based upon Copley's and EastGroup's respective
counsel's interpretation of the Code, applicable Treasury Regulations, judicial
authority and administrative rulings and practice, as in effect on the date
hereof. The opinions of counsel are not binding on the Internal Revenue Service
("IRS"), and the IRS is not precluded from adopting a contrary position. No
ruling has been or will be sought from the IRS concerning the federal tax
consequences of the Merger. In addition, there can be no assurance that future
legislation, judicial or administrative changes or interpretations will not
adversely affect the accuracy of the statements and conclusions set forth
herein. Any such changes or interpretations could be applied retroactively and
could affect the tax consequences of the Merger to EastGroup, Copley and/or the
Copley stockholders.
Subject to the limitations and qualifications referred to herein, tax
counsel to EastGroup and tax counsel to Copley are of the opinion that:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Code and EastGroup and Copley will each be a
party to the reorganization within the meaning of Section 368(b) of the
Code;
(ii) No gain or loss will be recognized by EastGroup or Copley as a
result of the Merger;
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(iii) Except as provided in paragraph (iv) below, no gain or loss will
be recognized by a Copley stockholder upon the exchange of Copley Shares
solely for EastGroup Shares as a result of the Merger;
(iv) Cash received by a Copley stockholder in lieu of a fractional
interest in an EastGroup Share will be treated as received as a
distribution in redemption of such fractional share by EastGroup, subject
to the provisions of Section 302 of the Code, as if such fractional
interest in an EastGroup Share had been issued in the Merger and then
redeemed by EastGroup;
(v) The tax basis of the EastGroup Shares received by a Copley
stockholder in the Merger will equal the tax basis of the stockholder's
Copley Shares exchanged in the Merger, reduced by any basis allocable to a
fractional interest in an EastGroup Share treated as sold or exchanged
under Section 302 of the Code; and
(vi) The holding period of the EastGroup Shares received by the Copley
stockholders in the Merger will include the holding period for the Copley
Shares of the stockholders exchanged in the Merger, provided that the
Copley Shares were held as capital assets at the Effective Time.
In rendering the foregoing opinions, Hale and Dorr and Jaeckle, Fleischmann
& Mugel have relied upon information contained in this document and the Merger
Agreement, and upon the representations by EastGroup and Copley set forth in
their respective officers' certificates dated the date of such opinions.
THE DISCUSSION SET FORTH BELOW UNDER THE HEADINGS "TAXATION OF REITS" AND
"TAXATION OF THE SHAREHOLDERS OF A REIT" IS INCLUDED FOR GENERAL INFORMATION
ONLY. IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF REIT
OPERATIONS. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO
CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING ACCURACY OF THIS
DISCUSSION. ANY SUCH CHANGE MAY OR MAY NOT BE RETROACTIVE AND COULD AFFECT THE
QUALIFICATION AND TAXATION OF EASTGROUP AS A REIT. EACH HOLDER OF COPLEY SHARES
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE OWNERSHIP OF
EASTGROUP SHARES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS.
TAXATION OF REITS
Since their inception, both EastGroup and Copley have elected to be taxed
as REITs under the Code, and both EastGroup and Copley, respectively, believe
that each has operated in a manner that permits it to qualify as a REIT under
the Code. Although the respective managements of EastGroup and Copley believe
that their respective company is organized and is operating in such a manner, no
assurance can be given that EastGroup will be able to continue to operate in a
manner so as to qualify or remain so qualified. To qualify as a REIT for a
taxable year, EastGroup must meet certain requirements. Generally, at the end of
each calendar quarter at least 75% of the value of its total assets must consist
of real estate assets, cash or governmental securities and not more than 25% of
the value of its total assets may consist of securities that are not counted as
good assets under the foregoing 75% test. EastGroup may not own more than 10% of
the outstanding voting securities of any corporation and may not own securities
of any one issuer comprising more than 5% of the total value of its assets;
shares of qualified REITs and of certain wholly-owned subsidiaries are exempt
from these prohibitions.
The Code also places restrictions on a REIT's sources of income. It
requires that in each taxable year at least 95% of a REIT's gross income be
derived from certain real estate activities, plus dividends, interest or gains
from disposition of stock or securities. Additionally, gross income from the
sale or other disposition of stock and securities held for less than one year
and of real property held for less than four years must comprise
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less than 30% of the gross income for each taxable year of the REIT. For each
taxable year, at least 75% of a REIT's gross income must be derived from
specified real estate sources. Real estate income for purposes of those
requirements includes gains from the sale of real property not held primarily
for sale to customers in the ordinary course of business, dividends on REIT
shares, interest on loans secured by mortgages on real property, certain rents
from real property and income from foreclosure property. For rents to qualify,
they may not be based on the income or profits of any person, except that they
may be based on a fixed percentage or percentages of gross income or receipts,
and the REIT may not manage the property or furnish services to tenants except
(i) through an independent contractor which is paid an arm's-length fee and from
which the REIT derives no income, or (ii) for any services performed which are
of a type customarily rendered in connection with the rental of space for
occupancy only and are not otherwise considered rendered to the occupant. The
requirements that must be satisfied for income to be within the 75% class of
gross income are highly technical and not always consistent with normal real
estate practice.
EastGroup must satisfy certain ownership restrictions that limit (i)
concentration of ownership of shares by a few individuals and (ii) ownership by
or common ownership of EastGroup and its tenants. The shares of EastGroup must
be held by at least 100 shareholders. No more than 50% in value of the
outstanding shares may be owned actually or constructively by five or fewer
individuals or certain other entities at any time during the last half of
EastGroup's taxable year. Accordingly, the EastGroup Declaration authorizes
EastGroup to redeem its shares if trustees are of the good faith opinion that
the beneficial ownership of EastGroup has become concentrated to such an extent
as to jeopardize its REIT classification. However, because the Code imposes
broad attribution rules in determining constructive ownership, no assurances can
be given that the restrictions of the EastGroup Declaration will be effective in
maintaining EastGroup's REIT status.
So long as EastGroup qualifies for taxation as a REIT and distributes at
least 95% of its real estate investment trust taxable income (computed without
respect to net capital gains or the dividends received deduction) for its
taxable year to its shareholders annually, EastGroup will not be subject to
federal income tax on that portion of such income distributed to shareholders.
Any undistributed taxable income or gain, however, will be taxed to EastGroup at
regular corporate rates. In addition, EastGroup may be subject to other special
income and excise taxes in certain circumstances.
If EastGroup fails to qualify as a REIT for any taxable year and certain
relief provisions do not apply, EastGroup will be subject to federal income tax
(including the alternative minimum tax) on its taxable income at regular
corporate rates and it will not receive a deduction for dividends paid to its
shareholders. Distributions to shareholders will be taxable as ordinary income
to the extent of current and accumulated earnings and profits and, subject to
certain limitations, will be eligible for the corporate dividends received
deduction, but there can be no assurance that any such distributions would be
made. Failure to qualify as a REIT could result in EastGroup significantly
reducing its distributions and incurring substantial indebtedness or liquidating
substantial investments in order to pay the resulting taxes. In addition,
EastGroup would not be eligible to elect REIT status for the four subsequent
taxable years, unless its failure to qualify was due to reasonable cause, and
not to willful neglect, and certain other requirements were satisfied. In order
to renew its REIT qualification, EastGroup would be required to distribute all
of its current and accumulated earnings and profits, which distributions would
be taxable as ordinary income to its shareholders, and EastGroup might be
subject to taxation on any unrealized gain inherent in its assets.
TAXATION OF THE SHAREHOLDERS OF A REIT
Distributions made to its shareholders out of current or accumulated
earnings and profits of EastGroup will generally be taxed to them as ordinary
income. A distribution by EastGroup of net capital gains will generally be
treated as a capital gain to shareholders to the extent properly designated by
EastGroup as a capital gain dividend. Capital gains of corporations are
generally taxed in the same manner as ordinary income except that capital losses
are deductible only to the extent of capital gains. Under Section 291 of the
Code, however, corporate shareholders may be required to treat up to 20% of any
such capital gain as ordinary income. For noncorporate taxpayers, net capital
gains are taxed at a maximum rate of 28%, while short-term capital gains and
ordinary income are taxed at a maximum rate of 39.6%. However, because of
certain limitations on itemized deductions and personal exemptions, the
effective rate may be higher in certain
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circumstances. Except to a very limited extent, capital losses of noncorporate
taxpayers are deductible only to the extent of capital gains. Neither
distributions of earnings and profits nor capital gains dividends are eligible
for the dividends-received deduction for corporations. Any loss on a sale of
shares of a REIT which were held for six months or less and with respect to
which a capital gain dividend was received will be treated as a long-term
capital loss, up to the amount of the capital gain dividend received with
respect to such shares. A distribution in excess of current or accumulated
earnings and profits will constitute a nontaxable return of capital, to the
extent of the shareholder's basis in the shares held, and is applied to reduce
the shareholder's basis in such shares. To the extent such a distribution is
greater than such basis, it will be treated as capital gain to those
shareholders holding their shares as capital assets. EastGroup will notify each
shareholder as to the portions of each distribution which, in its judgment,
constitute ordinary income, capital gain or return of capital. Should EastGroup
incur ordinary or capital losses, shareholders will not be entitled to include
such losses in their own income tax returns.
The Merger Agreement provides that Copley may declare, set aside and pay
dividends of not more than $0.27 per Copley Share for each full quarter prior to
the Effective Time. Additionally, in the event the Effective Time shall occur
between contemplated dividend record dates, Copley is permitted to distribute a
dividend for the period commencing on the most recent record date and ending on
the Effective Time based upon the $0.27 per Copley Share per quarter figure
multiplied by the fraction the numerator of which is the number of days from
Copley's most recent dividend record date through the Effective Time and the
denominator of which is 90. See "-- Dividends." EastGroup also intends to
declare and pay regularly scheduled dividend distributions for each full
calendar quarter prior to the Merger. In addition, if the Summer Hill Option is
exercised, Copley will distribute the net proceeds from that transaction to its
stockholders prior to the Merger. The general rules regarding taxation of REIT
distributions, described above, will apply to that distribution.
As a result of the Merger, Copley will have a short taxable year ending on
the Effective Time. If Copley's distributions to its stockholders during the
current taxable year prior to the Merger are not sufficient to maintain Copley's
REIT status for such short taxable year, immediately before the Effective Time,
Copley will make an additional distribution to its stockholders in an amount
sufficient to maintain its REIT status for such short taxable year. The general
rules regarding taxation of REIT distributions, described above, will apply to
that distribution.
ACCOUNTING TREATMENT
EastGroup will account for the Merger as a "purchase" transaction in
accordance with Accounting Principles Board Opinion No. 16. Purchase accounting
for a combination is similar to the accounting treatment used in the acquisition
of any asset group. The fair value of the consideration (cash, stock, debt
securities, etc.) given by the acquiring firm is used as the valuation basis for
the combination. The assets and liabilities of the acquired firm are revalued to
their respective fair values at the combination date. No such revaluation will
occur for tax purposes, which will result in book depreciation exceeding tax
depreciation for assets acquired in the Merger. The financial statements of the
acquiring company reflect the combined operations from the date of combination.
DISSENTERS' RIGHTS
Copley. Stockholders of Copley who vote against the Merger Agreement (or
abstain or fail to vote at all) will nevertheless be bound by the results of the
vote if Copley's stockholders approve the Merger. Copley's stockholders do not
have appraisal rights in connection with the Merger.
EastGroup. Shareholders of EastGroup who vote against the Merger Agreement
(or abstain or fail to vote at all) will nevertheless be bound by the results of
the vote if EastGroup's shareholders approve the Merger. EastGroup's
shareholders do not have appraisal rights in connection with the Merger.
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RESTRICTIONS ON RESALES OF SECURITIES
The EastGroup Shares to be issued pursuant to the Merger Agreement have
been registered under the Securities Act. Under present law, any public
reoffering or sale of such shares by any person who is not an "affiliate" of
Copley at the time the Merger Agreement is submitted to a vote of Copley's
stockholders will not have restrictions thereon. Also, under present law, any
public reoffering or sale of such shares by any person who is an "affiliate" of
Copley at the time the Merger Agreement is submitted to a vote of Copley's
stockholders ("Copley Affiliate") will require either (i) the further
registration of such shares under the Securities Act, (ii) compliance with Rule
145 promulgated under the Securities Act, which permits sales under certain
conditions, as discussed below, or (iii) the availability of another exemption
from such further registration. In very general terms, under Rule 145, assuming
that the Copley Affiliate is not, at any time, an affiliate of EastGroup, the
Copley Affiliate may publicly sell such EastGroup Shares if the Copley
Affiliate: (i) (a) sells during any three-month period no more than the number
of EastGroup Shares permitted under Rule 144(e) (which is generally the greater
of (1) 1% of the total number of EastGroup Shares outstanding, or (2) the
average weekly volume of trading of EastGroup Shares for the four calendar weeks
prior to the sale); (b) sells in a "brokers' transaction" (which means,
generally, that the broker can do no more than execute the order as agent for
the seller, can receive no more than the usual broker's commission, cannot
solicit orders to buy in connection with the transaction, and does not believe
that the seller is an underwriter of the securities being sold); (c) does not
solicit orders to buy in connection with the transaction and does not make any
payment in connection with such sale to anyone other than the selling broker;
and (d) sells at a time when there is adequate current public information about
EastGroup (which will be satisfied so long as EastGroup Shares remain registered
under the Exchange Act and EastGroup continues to file the necessary reports
under the Exchange Act); or (ii) (a) holds the EastGroup Shares for at least two
years and (b) sells at a time where there is adequate public information about
EastGroup (as in (i)(d) above); or (iii) holds the EastGroup Shares for at least
three years.
BOARD OF TRUSTEES AND MANAGEMENT OF SURVIVING COMPANY
The trustees, assuming they are elected pursuant to this Joint Proxy
Statement/Prospectus, and officers of EastGroup will be the trustees and
officers of the Surviving Company. Information regarding these individuals is
set forth under "Proposal 2 -- Election of Trustees (For EastGroup Shareholders
Only)."
EFFECTS OF THE MERGER
If the Merger is approved and consummated, Copley will be merged with and
into EastGroup. As a result, EastGroup will own all of the assets of Copley.
NEW YORK STOCK EXCHANGE LISTING
It is a condition to EastGroup's and Copley's obligations to consummate the
Merger that EastGroup obtain the approval for the listing of the EastGroup
Shares issuable in the Merger on the NYSE, subject to official notice of
issuance. See "-- Conditions to the Merger."
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INFORMATION CONCERNING COPLEY
BUSINESS
Copley was organized under the DGCL on May 8, 1985 and intends to continue
to qualify as a REIT under applicable provisions of the Code. Copley acquires,
develops, operates and owns commercial real estate, most of which is comprised
of industrial buildings.
In light of the strong preference of investors in REITs for direct
ownership of real estate by REITs, in the fall of 1993, Copley began the process
of restructuring its joint venture investments to realign its legal ownership
with the economic realities of each venture and to obtain operational control.
The last of Copley's investments were restructured effective February 1996
through two separate exchange transactions (the "February Exchanges"). See below
for more detailed information regarding these exchanges. Once the February
Exchanges are consummated, Copley will own all except two of its investments
either directly or through 100% controlled partnerships and will have
operational control over all of its investments.
After giving effect to the February Exchanges, Copley owned directly or
through its two joint venture investments, 11 properties totaling over 2.0
million square feet of net rentable area. Industrial properties, including bulk
distribution, research and development and light industrial space account for
approximately 91% of the total net rentable area in Copley's portfolio. Over 87%
of the net rentable area in Copley's portfolio is located in California and
Arizona.
A key element of Copley's strategy has been a concentrated focus on
industrial real estate in the western United States. In evaluating specific real
property investments, Copley considers such factors as (i) the geographic area
and type of property in light of Copley's investment and diversification
objectives; (ii) the proposed location, construction quality and design of the
property; (iii) projected cash flow; (iv) potential for capital appreciation;
(v) the terms of any proposed or existing tenant leases; (vi) the economic
growth, tax and regulatory environment in the community in which the property is
located; (vii) occupancy rates and demand for properties of similar type in the
vicinity; (viii) prospects for liquidity through sales or refinancing; and (ix)
if applicable, the experience, past performance and competence of Copley's
proposed joint venture partner or property manager. As a general rule, Copley
will not invest more than 25% of its total assets in a single property.
As discussed above, Copley has recently restructured a number of its
investments which were originally made through joint venture arrangements.
Copley anticipates that if the Merger should not be consummated, any future
investments would be made through the acquisition by Copley of fee interests in
real estate.
The Copley Bylaws permit the directors, with the approval of a majority of
the Independent Directors (as defined in the Copley Bylaws), to alter Copley's
investment policies without approval of the stockholders, if in the future the
directors determine that such a change is in the best interest of Copley and its
stockholders. The methods of implementing Copley's investment policies may also
vary as new investment and financing techniques are developed.
In general, Copley has a policy of seeking to reduce the amount of its
indebtedness. Under the Copley Bylaws, Copley may not incur borrowings which,
together with the amount of all then outstanding indebtedness, would exceed at
the time of such borrowings, 300% of the net book assets of Copley, unless a
majority of its Independent Directors determines that it is advisable to do so.
Copley has an agreement with Copley Advisors pursuant to which Copley
Advisors provides investment management and administrative services to Copley.
Copley has no employees. Executive officers of Copley Advisors also serve as the
executive officers of Copley but receive no remuneration from Copley.
Although Copley does not currently have plans to renovate, improve or
further develop its real properties, it owns undeveloped land at its Sample/I-95
Business Park property that it may develop or sell at some point in the future.
In the opinion of the management of Copley, the properties are adequately
covered by insurance.
Copley is not a party to, nor are any of its properties subject to, any
material pending legal proceedings. See "Proposal 1 -- The Merger
Agreement -- Taxation of REITs" and "Proposal 1 -- The Merger Agree-
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ment -- Taxation of the Shareholders of a REIT" for a description of the
material aspects of the tax treatment of Copley and its stockholders under
federal income tax laws.
Further information regarding Copley's investments is set forth in tabular
form at the end of this discussion and should be read in conjunction with the
narrative. The schedules and narratives have been organized to provide
information first, for those properties unaffected by the February Exchanges;
second, for those properties which Copley will own 100% subsequent to the
February Exchanges; and third, for those properties in which Copley will no
longer have an interest after the February Exchanges. See "-- Property Data
Summary at December 31, 1995," "-- Property Third-Party Debt Summary at December
31, 1995" and "-- Invested Capital Priorities at December 31, 1995."
1. Broadway Industrial Center
On March 31,1994, Copley purchased an approximately 121,000 square foot
industrial building located in Tempe, Arizona. The total purchase price was
approximately $2,350,000. Copley acquired a 100% fee interest in the property on
a direct ownership basis, rather than through a joint venture arrangement, and
incurred no acquisition indebtedness. At the date of acquisition, Copley had
entered into an agreement with The Hewson Company ("Hewson") which included both
an on-going management arrangement and granted Hewson an interest in the
property in lieu of an acquisition fee, which interest was payable upon the sale
or refinancing of the property or termination of the management arrangement. In
September 1995, Copley paid approximately $100,000 to buy out Hewson's interest
in the property. See "-- Property Data Summary at December 31, 1995."
2. Kingsview Industrial Center
On July 14, 1995, Copley purchased an approximately 83,000 square foot
industrial building located in Carson, California. The total purchase price was
approximately $3,000,000. Copley acquired a 100% fee interest in the property on
a direct ownership basis, rather than through a joint venture arrangement, and
incurred no acquisition indebtedness. See "-- Property Data Summary at December
31, 1995."
3. Los Angeles Corporate Center
Copley owns a 100% interest in an office building in Monterey Park,
California.
As of December 31, 1995, the building was 50% leased. In January 1996,
Copley executed a lease agreement which increased the percentage leased to 100%.
See "-- Property Data Summary at December 31, 1995."
4. University Business Center
Copley invested in a two-phase development of four research and development
buildings in Santa Barbara, California. The Phase I buildings consist of two
two-story research and development buildings containing an aggregate of
approximately 133,000 square feet. The Phase II buildings consist of two
two-story research and development buildings containing an aggregate of
approximately 97,000 square feet.
Prior to November 1, 1993, Copley owned a 50% interest in the joint venture
owning the properties. All of Copley's capital contribution related to its 50%
ownership interest was returned. On November 1, 1993, Copley purchased an
additional 30% interest in the joint venture for approximately $1,990,000 plus
closing costs, bringing Copley's ownership position to 80%. Copley also gained
operational control of the joint venture.
During 1993, Copley contributed additional capital to the joint venture of
$150,000 for tenant improvements. The capital earns a preferred return of 12%
and is required to be repaid over a three year period ending March, 1996. The
balance of this capital contribution was $14,652 as of December 31, 1995. In
February 1995, in conjunction with a refinancing, Copley contributed additional
capital to the joint venture of $3,500,000 which earns a preferred return of 11%
and is amortized over 22.5 years.
The joint venture obtained loans from Connecticut General Life Insurance
Company ("CIGNA"). One loan in the amount of $9,500,000 is secured by a first
mortgage on the two research and development buildings in Phase I. The joint
venture also obtained a second loan in the amount of $10,000,000 from CIGNA
which is
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secured by a first mortgage on the Phase II buildings. See "-- Property Data
Summary at December 31, 1995," "-- Property Third-Party Debt Summary at December
31, 1995" and "-- Invested Capital Priorities at December 31, 1995."
Pursuant to the terms of the joint venture, Copley's joint venture partner,
Bermant, had a right of first refusal to purchase Copley's interest in UBC which
became exercisable upon Copley's execution of the Merger Agreement. Copley was
advised by letter dated March 6, 1996 that Bermant had elected not to exercise
its right to purchase Copley's UBC interest.
5. Huntwood Associates
Copley owned an equity interest in a joint venture formed to acquire three
parcels of land within the Crocker South Industrial Park in Hayward, California
and to construct thereon bulk distribution/light industrial space. Prior to the
end of 1993, Copley owned a 60% interest in the joint venture. As of December
31, 1993, Copley obtained operational control of the property and 100% ownership
interest in all the joint venture's assets. Because of the high level of accrued
guaranteed payments owed to Copley, the joint venture partner surrendered its
40% ownership interest in the joint venture to Copley at no cost.
Development of all the buildings has been completed. Copley currently owns
seven buildings totaling approximately 514,400 square feet. In prior years, four
buildings totaling 180,600 square feet were sold.
The joint venture obtained a loan from Massachusetts Mutual Life Insurance
Company. The loan is secured by a first mortgage on certain of the land and
buildings. The joint venture also obtained a construction loan from Wells Fargo
Bank. This loan is secured by a first mortgage of certain on the land and
buildings. See "-- Property Data Summary at December 31, 1995" and "-- Property
Third-Party Debt Summary at December 31, 1995."
6. Wiegman Associates
Copley owns an interest in a joint venture which developed and now owns
four bulk distribution/light industrial buildings in Hayward, California. On
December 31, 1993, the Wiegman Associates joint venture was restructured to (i)
provide Copley with operating control, (ii) increase Copley's interest in the
venture from 60% to 80% and (iii) convert the joint venture from a general
partnership to a limited partnership. The joint venture agreement entitles
Copley to a 12% per annum cumulative compounded return on its original capital
contribution of $2,500,000. Any capital contributed after December 31, 1993 will
receive a 9.5% priority cumulative compounded return. Copley made no additional
investment in the property to acquire the 20% interest.
Three of the buildings are encumbered by a loan from Massachusetts Mutual
Life Insurance Company. The loan is secured by a first mortgage. Copley executed
a master lease for 38,900 square feet of space at an annual rent of $126,036;
the master lease expired December 25, 1995.
The property is also encumbered by a loan from Allstate Life Insurance
Company. The loan is secured by a first mortgage of the remaining land and
building. See "-- Property Data Summary at December 31, 1995," "-- Property
Third-Party Debt Summary at December 31, 1995" and "-- Invested Capital
Priorities at December 31, 1995."
7. Baygreen Industrial Park
On October 26, 1993, Copley purchased Baygreen Industrial Park in Hayward,
California for approximately $1,980,000. Copley acquired a 100% fee interest in
the property on a direct ownership basis, rather than through a joint venture
arrangement, and incurred no acquisition indebtedness. At the date of
acquisition Copley had entered into an agreement with Zelman Development Company
("Zelman") which included both an on-going management arrangement and granted
Zelman an interest in the property in lieu of an acquisition fee, which interest
was payable upon the sale or refinancing of the property or termination of the
management arrangement. In October 1995, Copley paid approximately $200,000 to
buy out Zelman's interest in the property.
64
<PAGE> 81
Baygreen Industrial Park consisted of four industrial buildings containing
an aggregate of 80,400 square feet. As discussed below, two of the buildings
were sold in 1994. As of December 31, 1995, Copley owns two buildings containing
approximately 40,200 square feet.
Following acquisition and refurbishment of the property, Copley received an
unsolicited offer from an existing tenant to purchase one of the buildings
(representing approximately 15,000 net rentable square feet) for a price of
$47.00 per square foot. The sale of this building occurred in the fourth quarter
of 1994. In addition, in conjunction with the lease of one of the buildings, a
tenant requested and was granted an option to purchase one of the buildings
(containing approximately 25,200 square feet) for approximately $47.60 per
square foot. The purchase option was exercised and the building was sold in the
fourth quarter of 1994. Copley made a loan to the purchaser of one of the
buildings in the amount of $700,000; this loan bears interest at the fixed rate
of 9% per annum, with interest only payable monthly in arrears through its
expiration in January 1997 when the principal balance is due. The loan is
secured by a first mortgage on the building. Copley recorded a gain totaling
approximately $627,000 on the sale of the two buildings. See "-- Property Data
Summary at December 31, 1995."
8. Sample/I-95 Business Park
In 1987, Copley acquired a 65% interest in a joint venture formed to
acquire land in Pompano Beach, Florida and to construct industrial buildings
thereon. Copley has completed construction of approximately 157,000 square feet.
Approximately 327,000 square feet of space remains to be developed.
During 1993, Copley obtained operational control of the property and as of
January 6, 1994, 100% ownership interest in all of the joint venture's assets.
Because of the high level of accrued guaranteed payments owed to Copley, the
joint venture partner surrendered its 35% interest in the joint venture to
Copley at no cost. See "-- Property Data Summary at December 31, 1995."
PROPERTIES OWNED 100% BY COPLEY SUBSEQUENT TO THE FEBRUARY EXCHANGES
9. Metro Business Park
Prior to August 1995, Copley owned a 50% general partnership interest in a
limited partnership which owned five service center industrial buildings located
in Phoenix, Arizona. Effective August 16, 1995, Copley entered into agreements
with its partners to restructure the ownership of the investment as a
tenancy-in-common. Copley contributed its capital and loans to the venture in
return for a 69.03% interest in the Metro Business Park tenancy-in-common.
Effective February 2, 1996, Copley exchanged its tenancy-in-common interest in
Carson Industrial Center, including the note due from the joint venture partner,
Central Distribution Center, West Side Business Park and the El Presidio
Properties to gain 100% ownership of Metro Business Park and the East Dominguez
Property. In addition, Copley paid approximately $138,000 to the co-
tenants-in-common.
The property is encumbered by loans from State Farm Life Insurance Company
and Allstate Life Insurance Company which are secured by first mortgages on
portions of the land and buildings. Together, the loans encumber the entire
property. See "-- Property Data Summary at December 31, 1995" and "-- Property
Third-Party Debt Summary at December 31, 1995."
10. Dominguez Properties
Prior to August 1995, Copley owned a 55% general partnership interest in a
limited partnership which owned four bulk distribution facilities in Carson (Los
Angeles), California. Effective August 16, 1995, Copley entered into agreements
with its partners to restructure the ownership of the investment as a
tenancy-in-common for each of the four buildings. Copley received a 55%
tenancy-in-common interest in each of the four Dominguez buildings. Three of the
four buildings are located on El Presidio and contain approximately 165,400
square feet (the "El Presidio Properties"). The fourth building is located on
East Dominguez Street and contains approximately 261,900 square feet (the "East
Dominguez Property"). Effective February 2, 1996, Copley exchanged its
tenancy-in-common interest in Carson Industrial Center, including the note due
from the joint venture partner, Central Distribution Center, West Side Business
Park and the El Presidio
65
<PAGE> 82
Properties to gain 100% ownership of Metro Business Park and the East Dominguez
Property. In addition, Copley paid approximately $138,000 to the
co-tenants-in-common.
The East Dominguez Property is encumbered by a loan from Allstate Life
Insurance Co. which is secured by a first mortgage. The El Presidio Properties
are encumbered by mortgage loans from Aetna Life Insurance Company. See
"-- Property Data Summary at December 31, 1995" and "-- Property Third-Party
Debt Summary at December 31, 1995."
11. Columbia Place
Prior to August 1995, Copley owned a 50% general partnership interest in a
limited partnership (the "Partnership") which was formed for the purpose of
developing and owning a five-story office building ("Columbia Place") located in
Columbia, Maryland. Effective August 16, 1995, Copley entered into an agreement
with its partner to restructure the ownership of the investment as a
tenancy-in-common. Copley contributed its capital and loans to the partnership
in return for a 78% interest in the Columbia Place tenancy-in-common. Effective
February 1, 1996, Copley exchanged its tenancy-in-common interest in 270
Technology Park to gain 100% ownership of Columbia Place. In addition, Copley
received $50,000 in cash and a secured promissory note of $180,000 bearing
interest at 9.56%, maturing on February 1, 2000, with annual interest and
principal payments of $56,250.
Columbia Place is encumbered by a loan from American General Investment
Corporation. See "-- Property Data Summary at December 31, 1995" and
"-- Property Third-Party Debt Summary at December 31, 1995."
PROPERTIES IN WHICH COPLEY WILL NO LONGER HAVE AN OWNERSHIP INTEREST AFTER THE
FEBRUARY EXCHANGES
12. Central Distribution Center
Prior to August 1995, Copley owned a 50% interest in a joint venture which
owned two bulk distribution industrial buildings in Phoenix, Arizona. Effective
August 16, 1995, Copley entered into agreements with its partners to restructure
the ownership of the investment as a tenancy-in-common. Copley contributed its
capital and loans to the venture in return for a 57.38% interest in the Central
Distribution Center tenancy-in-common. Effective February 2, 1996, Copley
exchanged its tenancy-in-common interest in Carson Industrial Center, including
the note due from the joint venture partner, Central Distribution Center, West
Side Business Park and the El Presidio Properties to gain 100% ownership of
Metro Business Park and the East Dominguez Property. In addition, Copley paid
approximately $138,000 to the co-tenants-in-common.
The property is encumbered by a loan from Confederation Life Insurance
Company that is secured by a first mortgage of the land and buildings and the
property in the West Side Business Park described below. See "-- Property Data
Summary at December 31, 1995" and "-- Property Third-Party Debt Summary at
December 31, 1995."
13. West Side Business Park
Prior to August 1995, Copley owned a 50% interest in a joint venture which
owned two bulk distribution/light industrial buildings in Phoenix, Arizona.
Effective August 16, 1995, Copley entered into agreements with its partners to
restructure the ownership of the investment as a tenancy-in-common. Copley
contributed its capital and loans to the venture in return for a 75.49% interest
in the West Side Business Park tenancy-in-common with only a 57.38% allocation
of the mortgage principal balance and debt service. Effective February 2, 1996,
Copley exchanged its tenancy-in-common interest in Carson Industrial Center,
including the note due from the joint venture partner, Central Distribution
Center, West Side Business Park and the El Presidio Properties to gain 100%
ownership of Metro Business Park and the East Dominguez Property. In addition,
Copley paid approximately $138,000 to the co-tenants-in-common.
The property is also encumbered by a loan from Confederation Life Insurance
Company which is secured by a first mortgage on the land and buildings and of
the Central Distribution Center described above. See "-- Property Data Summary
at December 31, 1995" and "-- Property Third-Party Debt Summary at December 31,
1995."
66
<PAGE> 83
14. Carson Industrial Center
Copley owns a 50% tenancy-in-common interest in a bulk distribution
industrial facility located in Carson (Los Angeles), California. In connection
with the dissolution of the original joint venture and conversion to a
tenancy-in-common ownership structure, Copley received a promissory note from
its joint venture partner in the amount of $176,889. This note bears simple
interest at the rate of 10% per annum. Interest is payable currently to the
extent the maker receives cash flow distributions from the property; any
interest not paid currently is accrued. As of December 31, 1995, interest of
$4,422 was due on the note which was paid in January. Effective February 2,
1996, Copley exchanged its tenancy-in-common interest in Carson Industrial
Center, including the note due from the joint venture partner, Central
Distribution Center, West Side Business Park and the El Presidio Properties to
gain 100% ownership of Metro Business Park and the East Dominguez Property. In
addition, Copley paid approximately $138,000 to the co-tenants-in-common.
The property is encumbered by a loan from State Farm Life Insurance Company
and is secured by a first mortgage on the land and building. See "-- Property
Data Summary at December 31, 1995" and "-- Property Third-Party Debt Summary at
December 31, 1995."
15. 270 Technology Park
Prior to August 1995, Copley owned a 50% general partnership interest in a
limited partnership which owned two research and development buildings located
in Frederick, Maryland. Effective August 16, 1995, Copley entered into an
agreement with its partner to restructure the ownership of the investment as a
tenancy-in-common. Copley contributed its capital and loans to the venture in
return for a 61% interest in the 270 Technology Park tenancy-in-common.
Effective February 1, 1996, Copley exchanged its tenancy-in-common interest in
270 Technology Park to gain 100% ownership of Columbia Place. In addition,
Copley received $50,000 in cash and a secured promissory note of $180,000
bearing interest at 9.56%, maturing on February 1, 2000, with annual interest
and principal payments of $56,250.
The buildings are encumbered by a first mortgage securing tax-exempt
industrial revenue bonds with an outstanding balance of $3,713,011 as of
December 31, 1995. Copley and its joint venture partner have guaranteed payments
of principal and interest on the bonds. Copley's guarantee is limited to 50% of
the obligations of the limited partnership and is in no case greater than
$2,000,000. A similar guarantee was provided by The Manekin Corporation, a
general partner of the partnership. As part of the exchange, Copley's guarantee
was extinguished. See "-- Property Data Summary at December 31, 1995" and
"-- Property Third-Party Debt Summary at December 31, 1995."
PROPERTIES SOLD DURING 1995
16. Park North Business Center ("Park North")
In 1985, Copley agreed to invest in a service center industrial development
in DeKalb County, Georgia known as Park North Business Center. Nine service
center industrial buildings were constructed on the 38.4 acres of land. In June
1995, Copley sold all of its interests and rights, including its ground lease
position, related to the Park North investment for approximately $18,500,000.
Copley recognized a gain of approximately $758,000 on the sale of this
investment.
17. Peachtree Corners Distribution Center ("Peachtree")
Copley owned a 100% fee interest in four bulk distribution industrial
buildings in Norcross, Georgia. In November 1995, Copley sold its interests in
the Peachtree Corners Distribution Center for approximately $10,000,000. Copley
recognized a gain of approximately $1,806,000.
67
<PAGE> 84
PROPERTY DATA SUMMARY AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
BUILDINGS APPROXIMATE APPROXIMATE
PROPERTY LOCATION TYPE OWNED EXISTING SF LAND(ACRES) DEVELOPABLE SF
- ---------------------- ------------------ ----------------------------- --------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Properties of Copley.
Broadway Industrial
Center Tempe, AZ Industrial-Bulk Distribution 1 121,463 5.7 0
Kingsview Industrial
Center Los Angeles, CA Industrial-Bulk Distribution 1 82,920 3.6 0
Los Angeles Corporate
Center Los Angeles, CA Office 1 76,542 4.5 0
University Business
Center Santa Barbara, CA Research & Development 4 230,412 12.8 0
Huntwood Associates Hayward, CA Industrial-Bulk Distribution 7 514,400 24.0 0
Wiegman Associates Hayward, CA Industrial-Bulk Distribution 4 261,900 12.0 0
Baygreen Industrial
Park Hayward, CA Industrial-Light Industrial 2 40,200 2.4 0
Sample/I-95 Business
Park Pompano Beach, FL Industrial-Light Industrial 4 157,412 46.0 345,000
--
----------- ----------- --------------
24 1,485,249 110.9 345,000
Properties owned 100% by Copley subsequent to the February Exchanges.
Metro Business Park Phoenix, AZ Industrial-Service Center 5 188,743 12.7 0
Dominguez
Properties(1) Los Angeles, CA Industrial-Bulk Distribution 1 261,500 11.8 0
Columbia Place Columbia, MD Office 1 115,273 11.5 57,500
--
----------- ----------- --------------
7 565,516 36.0 57,500
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
Central Distribution
Center Phoenix, AZ Industrial-Bulk Distribution 2 105,340 5.1 0
West Side Business
Park Phoenix, AZ Industrial-Bulk Distribution 2 42,342 2.7 0
Carson Industrial
Center Los Angeles, CA Industrial-Bulk Distribution 1 79,240 3.7 0
Dominguez Properties
(1) Los Angeles, CA Industrial-Bulk Distribution 3 165,400 7.3 0
Technology Park Frederick, MD Research & Development 2 69,307 7.7 0
--
------------------ ----------------------------- ----------- ----------- --------------
10 461,269 26.5 0
TOTALS 41 2,512,394 173.5 402,500
======== ========= ========= ===========
</TABLE>
- ------------------------
(1) As part of the February Exchanges, Copley relinquished its interest in the
three El Presidio buildings of Dominguez Properties and increased its
ownership in the East Dominguez building of Dominguez Properties to 100%.
68
<PAGE> 85
PROPERTY THIRD-PARTY DEBT SUMMARY AT DECEMBER 31, 1995
WHOLLY OWNED AND TENANCY-IN-COMMON PROPERTIES
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING
MATURITY INTEREST AMORTIZATION AS OF BALANCE DUE
PROPERTY LENDER DATE RATE PERIOD 12/31/95 AT MATURITY
- ------------------------ --------------------------------------- --------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Properties of Copley.
Broadway Industrial None -- -- -- -- --
Center
Kingsview Industrial None -- -- -- -- --
Center
Los Angeles Corporate None -- -- -- -- --
Center
University Business Connecticut General Life 04/01/00 9.060% 20 years $ 9,353,947 $ 8,477,479
Center Insurance Co.
Connecticut General Life 01/01/97 9.370% interest $10,000,000 $10,000,000
Insurance Co. only
Huntwood Associates Massachusetts Mutual Life 06/01/96 9.875% interest $10,000,000 $10,000,000
Insurance Co. only
Wells Fargo Bank, National 01/15/97 P+1; $4,775/month $ 2,292,993 $ 2,230,918
Association L+3.25
Wiegman Associates Massachusetts Mutual Life 06/01/96 9.875% interest $ 6,700,000 $ 6,700,000
Insurance Co. only
Allstate Life Insurance Co. 10/01/97 8.750% 20 years $ 986,409 $ 937,250
Baygreen Industrial Park None -- -- -- -- --
Sample/I-95 Business None -- -- -- -- --
Park
Properties owned 100% by Copley subsequent to the February Exchanges.
Metro Business Park State Farm Life Insurance Co. 03/01/97 9.250% 30 years $ 3,437,434 $ 3,373,341
Allstate Life Insurance Co. 04/01/98 8.000% 20 years $ 1,779,965 $ 1,667,760
Dominguez Properties Allstate Life Insurance Co. 01/01/97 9.000% 25 years $ 5,218,332 $ 5,137,608
Columbia Place American General Investment Corp. 12/31/09 8.875% 20 years $10,263,748 $ 4,508,804
<CAPTION>
PREPAYMENT
PROPERTY PROVISIONS
- ------------------------ ------------------------
<S> <C>
Properties of Copley.
Broadway Industrial --
Center
Kingsview Industrial --
Center
Los Angeles Corporate --
Center
University Business Prepayable after 10/1/97
Center at greater of 1% or
Yield Maintenance.
Greater of 1% or Yield
Maintenance.
Huntwood Associates No penalty.
No penalty.
Wiegman Associates No penalty.
2% in 1996; 1% in 1997
until 7/31/97; 0%
thereafter.
Baygreen Industrial Park --
Sample/I-95 Business --
Park
Properties owned 100% by Copley subsequent to the February Exchanges.
Metro Business Park The greater of 1% or 1%
plus Yield Maintenance.
None permitted until
3/10/96, then Yield
Maintenance.
Dominguez Properties 1% of amounts prepaid in
1996.
Columbia Place 1% if Prevailing Rate
8%; Yield Maintenance if
Prevailing Rate < 8%.
</TABLE>
69
<PAGE> 86
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING
MATURITY INTEREST AMORTIZATION AS OF BALANCE DUE
PROPERTY LENDER DATE RATE PERIOD 12/31/95 AT MATURITY
- ------------------------ --------------------------------------- --------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
Central Distribution Confederation Life Insurance Co. 10/01/98 8.625% 30 years $ 2,340,285 $ 2,237,399
Center
West Side Business Park Confederation Life Insurance Co. 10/01/98 8.625% 30 years $ 936,096 $ 894,942
Carson Industrial Center State Farm Life Insurance Co. 03/01/97 9.250% 29.5 years $ 2,092,780 $ 2,052,139
Dominguez Properties Aetna Life Insurance Co. 01/01/99 9.625% 30 years $ 812,684 $ 705,822
Aetna Life Insurance Co. 01/01/99 9.500% 30 years $ 453,375 $ 390,928
Aetna Life Insurance Co. 01/01/99 9.500% 30 years $ 554,209 $ 477,874
270 Technology Park Mercantile-Safe Deposit & Trust Co. 12/31/95 80% of (Note 1) $ 3,713,011 (Note 1)
Prime
-----------
Total Debt Balance per Financial Statements $70,935,268
============
<CAPTION>
PREPAYMENT
PROPERTY PROVISIONS
- ------------------------ ------------------------
<S> <C>
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
Central Distribution Yield Maintenance.
Center
West Side Business Park Yield Maintenance.
Carson Industrial Center The greater of 1% or 1%
plus Yield Maintenance.
Dominguez Properties No penalty.
No penalty.
No penalty.
270 Technology Park No penalty.
</TABLE>
All loans are non-recourse with the exception of the guarantees discussed above
and in the notes to consolidated financial statements. Yield Maintenance:
Usually requires a pre-payment penalty to be paid equal to the present value of
the loan's original payments due over the return that could be earned by holding
like maturity U.S. Treasuries. The exact formula varies from loan to loan. "P"
means Prime Rate; "L" means LIBOR (London InterBank Offered Rate)
- ---------------
Note 1: Extension of this note's maturity date is being negotiated. Amortization
was all excess cash flow after priority returns to partners. Copley
exchanged its interest in this project and was relieved of its
obligations under this note effective February 1, 1996.
70
<PAGE> 87
INVESTED CAPITAL PRIORITIES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
COPLEY PROPERTIES, INC.
-------------------------------------------------------------------
PREFERRED
INTEREST RETURN
ACCRUAL ON INTEREST PRIORITY ACCRUAL ON
MORTGAGE MORTGAGE DEFICIT ACCRUAL ON EQUITY PRIORITY EQUITY
PROPERTY LOANS LOANS LOANS DEFICIT LOANS INVESTMENT INVESTMENT
- ------------------------------ -------- ---------- ------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
University Business Center.... $ 0 $ 0 $ 0 $ 0 $ 14,652 $ 0
Wiegman Associates............ 0 0 0 0 2,500,000 1,111,737
Carson Industrial Center...... 176,889(1) 4,422 0 0 0 0
-- --
-------- ------ ---------- ----------
TOTALS.............. $176,889 $4,422 $ 0 $ 0 $2,514,652 $ 1,111,737
======== ====== == == ========== ==========
</TABLE>
- ---------------
(1) Effective February 2, 1996, Copley exchanged its tenancy-in-common interest
in Carson Industrial Center, including this note due from the co-tenant,
Central Distribution Center, West Side Business Park and the El Presidio
Properties to gain 100% ownership of Metro Business Park and the East
Dominguez Property.
The remaining properties of Copley are either wholly-owned, in which
Invested Capital Priorities are not applicable, or tenancies-in-common in
which the Invested Capital Priorities and accrued interest have been
contributed to equity.
COMPETITIVE MARKET CONDITIONS
In 1995, market conditions generally improved in the markets in which
Copley's properties are located. However, the recovery has been uneven across
different regions and product types, reflecting changes in the regional
economies. Following is a description of the markets in which Copley operates:
- Both the Hayward and Los Angeles, California industrial markets in which
Copley's industrial projects are located, improved over 1995 with vacancy
rates on similar space declining and rental rates strengthening.
- The San Gabriel Valley, California office market, in which Copley's Los
Angeles Corporate Center project is located, weakened slightly over 1995,
with net absorption slightly negative. However, in January 1996, Copley
executed a 38,500 square foot lease with CashFlex, L.P. for the only
vacant space in the project. The lease of the other two tenants in the
project expire in 2000.
- The Santa Barbara, California market for research and development space,
in which Copley's UBC project is located, remained healthy as a result of
its location, land prices and developmental controls imposed by the city.
Vacancy rates remained low and rental rates were stable.
- Both the Phoenix and Southwest Tempe, Arizona industrial markets in which
Copley's industrial projects are located, improved over 1995 with vacancy
rates on similar space declining and rental rates strengthening.
- Both the suburban Frederick and Columbia, Maryland markets, in which
Copley's R&D and Office projects are located, improved slightly in 1995
with vacancy rates declining and rental rates remaining stable.
- The Pompano Beach, Florida industrial market, in which Copley's
Sample/I-95 Business Park is located, remained solid in 1995. Vacancy
rates for similar space remained low and rental rates were stable.
Copley believes that the information concerning the market conditions
discussed above is accurate and that the sources from which it was obtained are
reliable; however, Copley cannot guarantee the accuracy of this information.
71
<PAGE> 88
PERCENTAGE LEASED AND 10% TENANTS
The following table sets forth the occupancy rates for each of the last
five years, the number of tenants occupying 10% or more of the developed square
feet at the property as of the end of the year and the principal business of
such tenants in Copley's properties at 12/31/95:
% means percentage of square feet occupied/# means number of tenants
occupying 10% or more of the developed square feet.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
PROPERTY: % # % # % # % # % #
- ------------------------------------- ---- --- ---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Properties of Copley.
Broadway Industrial Center........... N/A N/A N/A N/A N/A N/A 100% 4 100% 4
Kingsview Industrial Center.......... N/A N/A N/A N/A N/A N/A N/A N/A 100% 1
Los Angeles Corporate Center......... 100% 3 100% 3 100% 3 100% 3 50% 2
University Business Center........... 100% 1 97% 1 95% 3 100% 3 99% 3
Huntwood Associates.................. 82% 4 81% 2 98% 3 100% 3 100% 3
Wiegman Associates................... 69% 4 84% 4 100% 4 100% 3 100% 3
Baygreen Industrial Park............. N/A N/A N/A N/A 88% 2 50% 2 100% 3
Sample/I-95 Business Park............ 72% 2 92% 2 100% 2 100% 2 100% 3
Properties owned 100% by Copley subsequent to the February Exchanges.
Metro Business Park.................. 95% 2 95% 3 96% 3 100% 3 96% 3
Dominguez Properties(1).............. 100% 1 100% 1 100% 1 100% 1 100% 1
Columbia Place....................... 100% 1 100% 1 100% 1 100% 1 100% 1
Properties in which Copley will no longer have an ownership interest after the February
Exchanges.
Central Distribution Center.......... 100% 4 88% 3 69% 3 100% 4 100% 3
West Side Business Park.............. 100% 3 100% 2 100% 2 100% 2 100% 2
Carson Industrial Center............. 100% 1 100% 1 100% 1 100% 1 100% 1
Dominguez Properties(1).............. 100% 3 100% 3 100% 3 100% 3 100% 3
270 Technology Park.................. 82% 2 93% 3 100% 3 100% 3 95% 3
---- ---- ---- ---- ----
TOTAL AVERAGE OCCUPANCY:............. 87% 89% 98% 97% 98%
===== ===== ===== ===== =====
<CAPTION>
PROPERTY: PRINCIPAL BUSINESS AT 12/31/95
- ------------------------------------- -------------------------------------
<S> <C>
Properties of Copley.
Broadway Industrial Center........... Bakery, Moving & Storage, Data Forms
and Furniture
Kingsview Industrial Center.......... Furniture Welding
Los Angeles Corporate Center......... County Government & Import/Export
Trading
University Business Center........... Medical R&D & Educational
Software/Publishing
Huntwood Associates.................. Food, Paper & Bath Products
Wiegman Associates................... Office Supply, Book Distribution &
Laundry
Baygreen Industrial Park............. Furniture Supply & Metal Working
Sample/I-95 Business Park............ Furniture, Home Health & Electronics
Properties owned 100% by Copley subsequent to the February Exchanges.
Metro Business Park.................. Electronics, Medical Equipment Supply
and Church
Dominguez Properties(1).............. Freight Forwarding & Warehousing
Columbia Place....................... Payroll Services & Radio Ratings
Properties in which Copley will no longer have an ownership interest after the February
Exchanges.
Central Distribution Center.......... Door & Window, Tires and Records
Storage
West Side Business Park.............. Woodworking, Doors & Windows
Carson Industrial Center............. Liquor Distribution
Dominguez Properties(1).............. Freight Forwarding & Warehousing
270 Technology Park.................. Electronics & Telemarketing
</TABLE>
- ---------------
(1) As part of the February Exchanges, Copley relinquished its interest in the
three El Presidio buildings of Dominguez Properties and increased its
ownership in the East Dominguez building of Dominguez Properties to 100%.
72
<PAGE> 89
LEASE EXPIRATIONS
The following table sets forth for all of Copley's properties for each of
the next ten years (i) the number of leases that expire in each year, (ii) the
square feet covered by such leases expiring, (iii) the annual rental represented
by such leases and (iv) the percentage of total gross annual rental income
expiring.
<TABLE>
<CAPTION>
% OF TOTAL
# OF LEASE TOTAL ANNUAL ANNUAL
DATE EXPIRATIONS SQUARE FEET RENTAL(1) RENTAL(2)
- --------------------------------------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
1996......................................... 19 650,664 $ 2,881,870 20%
1997......................................... 18 458,587 2,235,071 15%
1998......................................... 14 190,310 896,715 6%
1999......................................... 6 119,987 1,205,856 8%
2000......................................... 5 165,372 1,152,732 8%
2001......................................... 3 208,470 656,957 5%
2002......................................... 2 73,000 305,832 2%
2003......................................... 5 231,711 2,130,076 15%
2004......................................... 2 53,250 492,018 3%
2005......................................... 4 162,972 941,583 7%
-- --
--------- -----------
TOTAL........................................ 78 2,314,323 $12,898,710 89%
Thereafter................................... 2 149,951 $ 1,584,636 11%
</TABLE>
- ---------------
(1) Represents annual straight-line rental revenue recognized in accordance with
generally accepted accounting principles for leases expiring in each year
shown.
(2) Represents the annual rental of leases expiring in each year as a percentage
of the total annual rental of all leases currently in place.
73
<PAGE> 90
SIGNIFICANT PROPERTIES
The following tables show, as of December 31, 1995, tenant lease
expirations for the next ten years at properties representing approximately 10%
or more of the total 1995 rental income of Copley's properties or approximately
10% or more of the total gross land and building assets of Copley's properties.
The tables set forth for each property specified below for each of the next
ten years (i) the number of leases that expire in that year, (ii) the square
feet covered by such leases expiring, (iii) the annual rental represented by
such leases and (iv) percentage of total gross annual rental income expiring for
the property based on December 31, 1995 rents.
UNIVERSITY BUSINESS CENTER:
<TABLE>
<CAPTION>
% OF TOTAL
NO. OF APPROXIMATE ANNUALIZED ANNUALIZED RENT
LEASES LEASED AREA IN RENT UNDER REPRESENTED BY
DATE EXPIRING SQUARE FEET EXPIRING LEASES(1) EXPIRING LEASES(2)
- ----------------------------------- -------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C>
1996............................... 0 0 $ 0 0%
1997............................... 4 39,259 537,432 15%
1998............................... 2 11,445 167,040 5%
1999............................... 3 63,987 1,022,784 28%
2000............................... 0 0 0 0%
2001............................... 0 0 0 0%
2002............................... 0 0 0 0%
2003............................... 3 92,311 1,610,628 42%
2004............................... 1 21,050 367,260 10%
2005............................... 0 0 0 0%
-- ------- ---------- ---
TOTAL.............................. 13 228,052 $3,705,144 100%
</TABLE>
HUNTWOOD ASSOCIATES:
<TABLE>
<CAPTION>
% OF TOTAL
NO. OF APPROXIMATE ANNUALIZED ANNUALIZED RENT
LEASES LEASED AREA IN RENT UNDER REPRESENTED BY
DATE EXPIRING SQUARE FEET EXPIRING LEASES(1) EXPIRING LEASES(2)
- ----------------------------------- -------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C>
1996............................... 0 0 $ 0 0%
1997............................... 2 88,100 303,396 16%
1998............................... 1 22,700 88,560 4%
1999............................... 2 31,400 96,096 5%
2000............................... 1 41,200 150,996 8%
2001............................... 1 100,000 394,188 20%
2002............................... 1 37,000 144,192 7%
2003............................... 2 139,400 519,448 26%
2004............................... 0 0 0 0%
2005............................... 1 54,600 272,196 14%
-- ------- ---------- ---
TOTAL.............................. 11 514,400 $1,969,072 100%
</TABLE>
74
<PAGE> 91
SAMPLE/I-95 BUSINESS PARK:
<TABLE>
<CAPTION>
% OF TOTAL
NO. OF APPROXIMATE ANNUALIZED ANNUALIZED RENT
LEASES LEASED AREA IN RENT UNDER REPRESENTED BY
DATE EXPIRING SQUARE FEET EXPIRING LEASES(1) EXPIRING LEASES(2)
- ----------------------------------- -------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C>
1996............................... 6 45,829 $288,551 31%
1997............................... 2 7,650 35,820 4%
1998............................... 2 8,123 58,929 6%
1999............................... 0 0 0 0%
2000............................... 0 0 0 0%
2001............................... 1 41,810 241,188 26%
2002............................... 1 36,000 161,640 18%
2003............................... 0 0 0 0%
2004............................... 0 0 0 0%
2005............................... 1 18,000 138,640 15%
-- ------- ---------- ---
TOTAL.............................. 13 157,412 $924,768 100%
</TABLE>
- ---------------
(1) Represents annual straight-line rental revenue recognized in accordance with
generally accepted accounting principles for leases expiring in each year
shown.
(2) Represents the annual rental of leases expiring in each year as a percentage
of the total annual rental of all leases currently in place at the property.
75
<PAGE> 92
The following table sets forth the principal provisions of leases which
represent more than 10% of the gross leasable area ("GLA") of each property and
the realty taxes for each property for the year ended December 31, 1995.
<TABLE>
<CAPTION>
ANNUAL # OF TENANTS SQ. FT. OF DEC. 31, 1995
REAL ESTATE WITH 10% OR PROJECT EACH STRAIGHT-LINE LEASE RENEWAL
PROPERTY TAXES MORE OF GLA SQ. FT. TENANT (GAAP) RENT EXPIRATION OPTIONS
- -------------------------------- ----------- ------------- --------- ---------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Properties of Copley.
Broadway Industrial Center...... $ 80,351 4 121,463 14,803 $ 3.36 8/98 None
13,332 $ 3.96 9/96 None
26,668 $ 3.46 5/98 1-5 Year Option
66,660 $ 3.88 11/01 2-5 Year Options
Kingsview Industrial Center..... $ 37,426 1 82,920 82,920 $ 5.51 3/05 None
Los Angeles Corporate Center.... $ 78,002 2 76,542 8,500 $ 9.00 1/00 1-5 Year Option
29,542 $17.17 11/00 1-5 Year Option
University Business Center...... $ 296,883 3 230,412 24,020 $13.17 4/97 None
20,154 $18.32 6/99 2-5 Year Options
31,013 $15.78 12/99 1-5 Year Option
82,132 $16.26 4/03 1-5 Year Option
Huntwood Associates............. $ 262,331 3 514,400 100,000 $ 3.94 9/01 None
139,400 $ 3.73 6/03 1-5 Year Option
54,600 $ 4.99 2/05 None
Wiegman Associates.............. $ 118,550 3 261,900 125,700 $ 3.64 7/96 1-5 Year Option
40,000 $ 4.28 6/97 None
71,600 $ 4.19 9/97 1-5 Year Option
Baygreen Industrial Park........ $ 10,940 3 40,200 7,500 $ 3.84 6/96 None
7,500 $ 4.56 6/97 None
25,200 $ 3.51 9/98 1-5 Year Option
Sample/I-95 Business Park....... $ 211,868 3 157,412 41,810 $ 5.77 5/01 None
36,000 $ 4.49 1/02 2-5 Year Options
18,000 $ 7.70 1/05 2-3 Year Options
Properties owned 100% by Copley subsequent to the February Exchanges.
Metro Business Park............. $ 166,364 3 188,743 22,000 $ 5.67 8/96 3-3 Year Options
75,620 $ 5.22 9/96 2-5 Year Options
30,000 $ 5.58 7/98 2-3 Year Options
Dominguez Properties(1)......... $ 78,517 1 261,500 261,500 $ 3.89 12/96 None
Columbia Place.................. $ 168,381 1 115,273 115,273 $11.08 12/09 4-5 Year Options
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
Central Distribution Center..... $ 77,895 3 105,340 42,940 $ 3.99 6/97 None
30,200 $ 4.15 11/97 None
32,200 $ 3.87 10/04 None
West Side Business Park......... $ 34,737 2 42,342 8,380 $ 4.29 3/96 None
33,962 $ 2.48 2/98 None
Carson Industrial Center........ $ 39,996 1 79,240 79,240 $ 4.32 10/00 1-5 Year Option
Dominguez Properties............ $ 60,672 3 165,400 46,600 $ 4.20 1/96 None
53,600 $ 3.36 3/97 None
65,200 $ 3.99 5/97 None
270 Technology Park............. $ 51,827 3 69,307 10,218 $ 9.30 10/97 1-2 Year Option
7,452 $ 9.95 8/05 None
34,678 $ 8.85 1/11 None
-------
TOTAL SQUARE FEET............... 2,512,394
=======
</TABLE>
- ---------------
(1) As part of the February Exchanges, Copley relinquished its interest in the
three El Presidio buildings of Dominguez Properties and increased its
ownership in the East Dominguez building of Dominguez Properties to 100%.
76
<PAGE> 93
The following table sets forth the average effective annual rent per square
foot, for each of the last five years, for each of Copley's properties.
<TABLE>
<CAPTION>
EXISTING RECOGNIZED
SQUARE YEAR-END RENTAL NET EFFECTIVE
PROPERTIES FEET OCCUPANCY REVENUE RENT ($/SQ/YR)
- --------------------------------------------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C>
Properties of Copley.
Broadway Industrial Center
1991.................................... N/A N/A N/A N/A
1992.................................... N/A N/A N/A N/A
1993.................................... N/A N/A N/A N/A
1994(1)................................. 121,463 100% 277,175 $ 3.04
1995.................................... 121,463 100% 542,897 $ 4.47
Kingsview Industrial Center
1991.................................... N/A N/A N/A N/A
1992.................................... N/A N/A N/A N/A
1993.................................... N/A N/A N/A N/A
1994.................................... N/A N/A N/A N/A
1995(2)................................. 82,920 100% 232,381 $ 2.80
Los Angeles Corporate Center
1991.................................... 76,542 100% 1,170,945 $15.30
1992.................................... 76,542 100% 1,150,767 $15.03
1993.................................... 76,542 100% 1,181,416 $15.43
1994.................................... 76,542 100% 1,258,939 $16.45
1995.................................... 76,542 50% 757,245 $13.19
University Business Center
1991.................................... 232,347 100% 3,759,000 $16.26
1992.................................... 232,347 97% 3,592,000 $15.70
1993.................................... 232,347 95% 3,968,000 $17.79
1994.................................... 230,412 100% 4,562,000 $20.22
1995.................................... 230,412 99% 4,572,353 $19.94
Huntwood Associates
1991.................................... 449,000 82% 2,272,924 $ 5.56
1992.................................... 508,800 81% 1,866,257 $ 4.50
1993.................................... 508,800 98% 1,736,333 $ 3.81
1994.................................... 512,600 100% 1,864,893 $ 3.69
1995.................................... 514,400 100% 2,160,670 $ 4.21
Wiegman Associates
1991.................................... 261,900 69% 860,970 $ 4.27
1992.................................... 261,900 84% 813,401 $ 4.06
1993.................................... 261,900 100% 924,421 $ 3.84
1994.................................... 261,900 100% 1,200,213 $ 4.58
1995.................................... 261,900 100% 1,151,581 $ 4.40
Baygreen Industrial Park
1991.................................... N/A N/A N/A N/A
1992.................................... N/A N/A N/A N/A
1993.................................... 80,400 88% 51,603 $ 3.72
1994(3)................................. 40,200 50% 216,886 $ 3.26
1995.................................... 40,200 100% 118,244 $ 2.94
</TABLE>
77
<PAGE> 94
<TABLE>
<CAPTION>
EXISTING RECOGNIZED
SQUARE YEAR-END RENTAL NET EFFECTIVE
PROPERTIES FEET OCCUPANCY REVENUE RENT ($/SQ/YR)
- --------------------------------------------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C>
Sample/I-95 Business Park
1991.................................... 102,000 72% 316,880 $ 4.31
1992.................................... 139,412 92% 520,906 $ 4.56
1993.................................... 139,412 100% 968,775 $ 7.24
1994.................................... 139,412 100% 1,021,894 $ 7.33
1995.................................... 157,412 100% 1,083,211 $ 7.30
Properties owned 100% by Copley subsequent to the February Exchanges.
Metro Business Park
1991.................................... 188,635 95% 690,510 $ 4.91
1992.................................... 188,635 95% 999,422 $ 5.58
1993.................................... 188,635 96% 1,216,604 $ 6.75
1994.................................... 188,743 100% 1,442,425 $ 7.80
1995.................................... 188,743 96% 1,387,215 $ 7.50
Dominguez Properties
1991.................................... 426,900 100% 1,579,049 $ 3.70
1992.................................... 426,900 100% 1,699,710 $ 3.98
1993.................................... 426,900 100% 1,750,067 $ 4.10
1994.................................... 426,900 100% 1,708,341 $ 4.00
1995(4)................................. 426,900 100% 1,861,329 $ 4.36
Columbia Place
1991.................................... 115,273 100% 1,698,630 $14.74
1992.................................... 115,273 100% 1,690,514 $14.67
1993.................................... 115,273 100% 1,705,109 $14.79
1994(5)................................. 115,273 100% 1,748,450 $15.17
1995.................................... 115,273 100% 1,837,740 $15.94
</TABLE>
78
<PAGE> 95
<TABLE>
<CAPTION>
EXISTING RECOGNIZED
SQUARE YEAR-END RENTAL NET EFFECTIVE
PROPERTIES FEET OCCUPANCY REVENUE RENT ($/SQ/YR)
- --------------------------------------------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C>
Properties in which Copley will no longer have an ownership interest after the February Exchanges.
Central Distribution Center
1991.................................... 105,340 100% 378,369 $ 3.82
1992.................................... 105,340 88% 311,685 $ 3.15
1993.................................... 105,340 69% 410,064 $ 4.96
1994.................................... 105,340 100% 372,979 $ 4.19
1995.................................... 105,340 100% 476,743 $ 4.53
Westside Distribution Center
1991.................................... 42,342 100% 108,897 $ 3.06
1992.................................... 42,342 100% 81,002 $ 1.91
1993.................................... 42,342 100% 116,059 $ 2.74
1994.................................... 42,342 100% 127,233 $ 3.00
1995.................................... 42,342 100% 142,338 $ 3.36
Carson Industrial Center
1991.................................... 79,240 100% 423,806 $ 5.35
1992.................................... 79,240 100% 325,201 $ 4.10
1993.................................... 79,240 100% 383,069 $ 4.83
1994.................................... 79,240 100% 407,323 $ 5.14
1995.................................... 79,240 100% 405,301 $ 5.11
270 Technology Park
1991.................................... 69,307 82% 507,575 $ 9.15
1992.................................... 69,307 93% 603,482 $ 9.95
1993.................................... 69,307 100% 681,066 $10.18
1994.................................... 69,307 100% 743,001 $10.72
1995.................................... 69,307 95% 716,456 $10.60
</TABLE>
- ---------------
(1) As property was acquired on March 31, 1994, Net Effective Rent calculated
from April through December.
(2) As property was acquired in July 1995, Net Effective Rent calculated from
July through December.
(3) As two buildings were sold in early December 1994, Net Effective Rent is
calculated as follows:
$216,886/[((50% X 40,200)/12) + ((88% X 80,400) X 11/12)].
(4) The Recognized Rental Revenue includes income from the three El Presidio
buildings of $754,816 in 1995.
(5) Does not include impact of BDM lease termination payments.
Net Effective Rent is calculated as follows:
Recognized Rental Revenue/Average Square Feet Occupied during the year.
Average Square Feet Occupied equals: square feet X ((beginning year
occupancy + year end occupancy)/2)
Recognized Rental Revenue is the rental revenue recognized for financial
statement purposes including operating expense reimbursements.
79
<PAGE> 96
FEDERAL TAX BASIS INFORMATION FOR COPLEY
The following table sets forth for each of Copley's significant properties
the tax information as follows: (i) Federal tax basis as of December 31, 1995;
(ii) 1995 annual rate of depreciation; (iii) method of depreciation; and (iv)
life claimed, with respect to each property or component thereof for purposes of
depreciation for tax purposes.
<TABLE>
<CAPTION>
FEDERAL RATE OF LIFE
PROPERTY TAX BASIS DEPRECIATION METHOD IN YEARS
- ---------------------------------------- ----------- ----------- -------------- --------
<S> <C> <C> <C> <C>
University Business Center
- ----------------------------------------
Building................................ $ 9,808,100 3.18% Straight Line 31.5
Improvements............................ 5,923,487 3.18% Straight Line 31.5
Improvements............................ 5,094,510 2.56% Straight Line 39
----------- -----------
Total Depreciable Assets................ $20,826,097
Huntwood Associates
- ----------------------------------------
Building & Improvements................. $12,603,951 2.50% Straight Line 40
----------- -----------
Total Depreciable Assets................ $12,603,951
Sample/I-95 Business Park
- ----------------------------------------
Building & Improvements................. $ 242,063 28.57% 200% DB(1) 7
Building & Improvements................. 553,788 10.00% 150% DB(1) 15
Building & Improvements................. 3,695,997 3.18% Straight Line 31.5
Building & Improvements................. 978,340 2.56% Straight Line 39
----------- -----------
Total Depreciable Assets................ $ 5,470,188
Total Depreciable Assets for tax
purposes.............................. $38,900,236
==========
</TABLE>
- ---------------
(1) "DB" means Declining Balance
80
<PAGE> 97
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Copley's assets consist primarily of investments in real estate. At
December 31, 1995, several properties were owned directly by Copley; others were
owned by joint ventures in which Copley is the managing general partner or
structured as tenancy-in-common in which Copley was a co-tenant. As a co-tenant
in its tenancy-in-common investments and a general partner in its joint venture
investments, Copley was obligated to fund its proportionate share of operating
deficits.
At December 31, 1995, Copley had cash and cash equivalents totaling
$5,716,300. Copley also has a $5,000,000 bank line-of-credit which expires on
July 31, 1996. The average outstanding balance on the line-of-credit during 1995
and 1994 was $2,091,644 and $3,402,000, respectively.
Dividends continue to be paid from cash generated by operations. As more
fully discussed under "-- Results of Operations" below, cash flow from
operations was $3,450,436 in 1995, $5,295,756 in 1994 and $4,596,582 in 1993.
Copley intends to distribute to its stockholders at least 95% of taxable income
so as to maintain its qualification as a REIT under the Code. Copley's policy is
to pay dividends based on cash flow from operations, which usually exceeds
taxable income. The quarterly dividend level was increased twice during 1994,
from $0.20 per Copley Share in the prior quarter to $0.22 per Copley Share in
January and raised again to $0.25 per Copley Share in September. In 1995, the
dividend was increased to $0.27 per Copley Share in June.
In July 1995, Copley entered into an agreement to extend the maturity of
the mortgage notes payable to Massachusetts Mutual Life Insurance Company which
are secured by the Huntwood Associates and Wiegman Associates properties from
January 1, 1996 to June 1, 1996 on the same terms and conditions as the original
financings.
In June 1995, Copley entered into an agreement to extend the maturity of a
mortgage note payable to Wells Fargo Bank which is secured by another portion of
the Huntwood Associates property from June 15, 1995 to January 15, 1997 on the
same terms and conditions as the original financing.
A mortgage note payable, secured by the UBC property, matured and was
refinanced in February 1995. A principal paydown of $3,500,000 was made in
conjunction with the refinancing. The funds for the paydown were primarily
obtained from a short-term mortgage loan of $3,250,000 secured by the Peachtree
Corners Distribution Center ("Peachtree"), which in turn was retired as part of
the closing when Peachtree was sold.
During the second quarter of 1995, Copley retained Morgan Stanley as its
financial advisor to assess the strategic alternatives available to Copley in
order to maximize stockholder value. In September 1995, Morgan Stanley
recommended that Copley solicit the interest of third parties in merging with
Copley or acquiring its stock or assets. Morgan Stanley also assisted Copley in
the solicitation of interest of third parties. In February 1996, Copley entered
into the Merger Agreement pursuant to which Copley will be merged into
EastGroup. In the Merger, each Copley Share will be converted into EastGroup
Shares with a value of $15.60, subject to certain adjustments. The Merger is
subject to several conditions including approval by the shareholders of
EastGroup and the stockholders of Copley and registration of the EastGroup
Shares to be issued with the SEC.
RESULTS OF OPERATIONS
Acquisitions and Dispositions
In November 1995, Copley sold its interest in Peachtree for a purchase
price of approximately $10,000,000. After payment of selling expenses and the
outstanding mortgage loan, Copley received net cash proceeds of approximately
$7,626,000, including deposits of $125,000 and $1,165,000 received in March 1995
and June 1995. The outstanding principal balance of $2,250,000 on a $3,250,000
mortgage note payable which the buyer issued to Copley in February 1995 was
retired as part of the closing. In July 1995, Copley made a
81
<PAGE> 98
payment to reduce the outstanding principal of this note by $1,000,000. Copley
recognized a gain on the sale of approximately $1,806,000.
In July 1995, Copley purchased Kingsview, an 83,000 square foot industrial
building located in Carson, California, for approximately $3,000,000 in cash.
In June 1995, Copley sold all of its interests and rights, including its
ground lease position, related to the Park North Business Center investment for
approximately $18,500,000. Proceeds from the sale of approximately $12,900,000,
net of the assumption of debt associated with the ground lease property, were
used to pay off the mortgage notes payable to Wells Fargo Realty Advisors and
the revenue bonds which were owed by the ground lessee and guaranteed by Copley.
After settlement of the debt and payment of selling expenses, Copley received
net cash proceeds of approximately $6,825,000, including a deposit of $125,000
received in March 1995. Copley recognized a gain of approximately $758,000.
In the fourth quarter of 1994, Copley sold two of the buildings at the
Baygreen Industrial Park in separate transactions for proceeds of $1,782,925 and
recognized gains totaling $626,931.
In March 1994, Copley purchased Broadway Industrial Park, an industrial
building located in Tempe, Arizona, for approximately $2,350,000.
Restructurings
In September 1995, Copley paid approximately $100,000 to terminate an
incentive property management agreement related to Broadway Industrial Center
and paid approximately $200,000 in October 1995 to terminate an incentive
property management agreement related to Baygreen Industrial Park. The incentive
property management agreements represented a contingent equity interest in the
properties granted at the date of acquisition, payable upon sale, refinancing,
or termination. Therefore, the termination fees paid have been recorded as
acquisition costs and added to Copley's carrying value of the investments.
In August 1995, Copley entered into agreements with certain of its
co-venture partners to restructure the ownership of the joint venture
investments as tenancies-in-common. Effective February 1, 1996, Copley exchanged
its co-tenant interest in the 270 Technology Park property to obtain 100%
ownership of the Columbia Place property. Effective February 2, 1996, Copley
exchanged its co-tenant interests in the Carson Industrial Center, Central
Distribution Center, West Side Business Park and the three El Presidio buildings
(comprising a portion of the Dominguez Properties) to obtain 100% ownership of
the Metro Business Park tenancy-in-common and the remaining building in the
Dominguez Properties tenancy-in-common. These transactions did not generate a
material gain or a loss or have an impact on stockholders' equity.
Effective January 1, 1994, Copley entered into a restructuring agreement
giving Copley a controlling interest in three partnerships in the Park North
Business Center investment (the "Parknorth Partnerships"). Under the
restructuring, 100% ownership of the property was transferred to Copley on March
30, 1995. The remaining portion of the Park North Business Center investment
included land that was leased under a long-term ground lease arrangement. As
discussed above, the entire Park North Business Center investment was sold on
June 30, 1995.
Significant Lease Transaction
In September 1994, M.O.R. XXXVI Associates Limited Partnership, a
partnership in which Copley is a general partner (the "M.O.R. XXXVI
Partnership") and the owner of Columbia Place, modified the existing terms of
its sole lease and mortgage loan agreements. BDM Federal, Inc. ("BDM"), the
original tenant with a lease expiring in March 1998, desired to vacate the
building and Ceridian Corporation ("Ceridian"), a new tenant, desired to occupy
the building. BDM, Ceridian, and the M.O.R. XXXVI Partnership entered into a
series of agreements under which BDM is obligated for certain payments to the
M.O.R. XXXVI Partnership through March 1998. The payments are contingent on
future events and are being recognized as income when the contingencies expire.
In 1994, approximately $864,000 was recognized as additional income from BDM as
a result of the transaction.
82
<PAGE> 99
Ceridian entered into a lease with the M.O.R. XXXVI Partnership which
commenced September 1994 and expires December 2009, subject to earlier
termination options in December 2004 and December 2006. Ceridian was responsible
for all of its tenant improvements and chose to substantially re-fit this space.
This resulted in the write-off by the M.O.R. XXXVI Partnership of approximately
$2,635,000 of tenant improvements and other capital costs.
In conjunction with the leasing transaction, the mortgage note payable to a
third-party lender of approximately $10,490,000 was restructured. The interest
rate was reduced from 10.125% to 8.875% per annum, effective December 1, 1994
and the maturity date was extended from May 1998 to December 2009. The maturity
date may be accelerated if Ceridian exercises its termination options. The
revised mortgage note requires monthly payments of principal and interest based
on a twenty-year amortization schedule.
The M.O.R. XXXVI Partnership's costs of the transaction have been
capitalized and are being amortized over the life of the lease or loan as
applicable.
Asset Valuation
The estimated net realizable value of the undeveloped land at Sample/I-95
Associates Business Park had declined significantly in prior years. In
accordance with Copley's policy, the carrying value was reduced to approximate
net realizable value, resulting in an investment valuation allowance of $900,000
in 1993. The value has remained stable during 1994 and 1995.
Investment Performance
The overall leased percentage for the portfolio was 98% at December 31,
1995, up from 97% a year earlier. Leases for 16% of Copley's square footage
expired during 1995 and were largely renewed; leases for 26% of Copley's square
footage are scheduled to expire in 1996. Management expects that occupancy will
not be significantly affected by the upcoming expirations, as the demand for
industrial space strengthens with the recovering economy; however, there can be
no guarantee that the space will be leased or will be leased on favorable terms.
Excluding the 1994 lease termination charges at Columbia Place and the
valuation allowance on Sample/I-95 in 1993, overall real estate operating
results were $2,193,768 in 1995; $1,867,745 in 1994; and $1,319,667 in 1993.
These changes between years reflect changes in the operating results of the
underlying properties, as well as property acquisitions.
1995 RESULTS OF OPERATIONS COMPARED TO 1994
The improvement from the prior year is primarily due to a decrease in
depreciation expense which resulted from the sale of the Park North Business
Center on June 30, 1995; lower interest expense due to debt reductions at
certain properties; income generated from Kingsview which was purchased in July
1995; and increased rental revenue at certain properties due to higher occupancy
rates. These improvements were partially offset by a write-off of approximately
$71,000 in rent-receivable from a former tenant of the Huntwood Associates
property; the expiration in the first quarter of 1995 of a lease representing
approximately one-half the rentable space at the Los Angeles Corporate Center;
and the loss of operating income generated from the Park North Business Center
and Peachtree properties which were sold during the year.
Cash flow from operations decreased by $1,845,320 between 1995 and 1994.
The decrease is due primarily to the following factors: (i) under the terms of
the new lease at Columbia Place, cash flow from rent in 1995 is less than in
previous years; (ii) cash from operations in the first quarter of 1994 benefited
from the realization of cash upon conversion of the Park North Business Center
property from a joint venture accounted for under the equity method to a
wholly-owned property accounted for on a consolidated basis; (iii) a significant
lease expired at the Los Angeles Corporate Center in the first quarter of 1995;
(iv) the Park North Business Center was sold in the second quarter of 1995; and
(v) professional fees increased as discussed below. These decreases to cash flow
were partially offset by general improvement in operations at the other
properties and the acquisition of Kingsview.
83
<PAGE> 100
1994 RESULTS OF OPERATIONS COMPARED TO 1993
A significant portion of the improvement in investment performance during
1994 is attributable to UBC and Peachtree. These properties experienced notable
improvement due to increases in occupancy as well as lease renewals in improved
market conditions. The acquisitions of Baygreen Industrial Park in late 1993 and
Broadway Industrial Center in early 1994 also contributed to the improvement.
Interest expense decreased at Sample/I-95 and Park North Business Center due to
the retirement at maturity during 1994 of certain mortgage notes totaling
approximately $6,600,000. Depreciation expense increased in 1994 primarily in
connection with property acquisitions.
Cash flow from operations increased by $699,174 between 1994 and 1993. This
increase, as with the increase in real estate operating results, is due mainly
to the improved operating results of the properties, particularly UBC and
Peachtree. The difference between the improvement in cash flow from operations
and the smaller improvement in real estate operating results is due to a number
of factors including (i) the timing of receipts of rents may differ from the
period in which revenue is recognized, (ii) the year-to-year change in
depreciation expense which affects real estate operating results but not cash
flow from operations, and (iii) the year-to-year change in portfolio level
expenses which affects cash flow from operations but not real estate operating
results.
Portfolio Expenses
Management advisory fees decreased by 37% in 1995 compared to 1994 and
increased 19% in 1994 compared to 1993, which is consistent with the changes in
cash flow from operations, as discussed above, upon which the management fee
computation is based.
Professional fees for 1995 increased by approximately $756,000 compared to
1994 as a result of costs incurred by Copley related to its consideration of
various strategic alternatives aimed at maximizing stockholder value and
subsequent solicitation of proposals to acquire Copley or substantially all of
its assets. Included in professional fees for the year ended December 31, 1995
is approximately $352,000 of investment advisory fees earned by Morgan Stanley
and $324,000 in legal fees related to this process. Upon the consummation of the
merger, Copley has committed to pay Morgan Stanley a transaction fee of $1.5
million, less the amounts previously paid.
Professional fees increased by $45,000 in 1994 over 1993 primarily due to
increased utilization of outside counsel for routine legal services and an
increase in auditing and accounting fees.
Fees paid to the Board of Directors in 1995, which are included in general
and administrative expenses, increased by approximately $94,000 over 1994 due to
increased frequency of meetings and an increase in the per meeting fee payable
to each director which became effective during the second quarter of 1995.
General and administrative expenses increased by approximately $46,000 in
1994 compared to 1993, due primarily to an increase in franchise taxes.
Interest expense for 1995 and 1994 was $184,562 and $210,241, respectively.
The decrease in interest expense is the result of lower borrowings under
Copley's line-of-credit. There were no borrowings or interest expense in 1993.
In late 1994, Copley commenced the marketing of additional equity on a
private placement basis and incurred $501,227 in Deferred Financing Costs in
connection with pursuing the private placement and arranging for an increased
line-of-credit, which was contingent on additional equity. Discussions with
potential investors did not produce an agreement on the terms of an equity
investment and Copley wrote-off the Deferred Financing Costs in the quarter
ended March 31, 1995.
INFLATION
By their nature, real estate investments tend not to be adversely affected
by inflation. Inflation may cause appreciation in the value of Copley's real
estate investments over time if rental rates and replacement costs of properties
increase. Declines in property values, over the past several years, due to
market and economic conditions, have overshadowed the positive effect inflation
may have on the value of Copley's investments.
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INFORMATION CONCERNING EASTGROUP
Detailed information concerning EastGroup is set forth in EastGroup's
Annual Report on Form 10-K and Annual Report to Shareholders for the year ended
December 31, 1995, which accompanies this Joint Proxy Statement/Prospectus and
which is incorporated herein by reference.
RECENT DEVELOPMENTS
Merger with LNH. On December 22, 1995, an Agreement and Plan of Merger
(the "LNH Merger Agreement") by and between EastGroup, LNH and EastGroup-LNH
Corporation, a wholly-owned subsidiary of EastGroup, was executed pursuant to
which LNH would be merged with and into EastGroup-LNH Corporation. Pursuant to
the LNH Merger Agreement, each outstanding LNH Share will be converted into the
right to receive the number of EastGroup Shares determined by dividing the value
$8.10 by the average closing price on the NYSE for EastGroup Shares for the 10
trading days preceding the closing of the EastGroup-LNH Merger. The closing of
the EastGroup-LNH Merger is subject to a number of conditions including the
approval of the LNH Merger Agreement by the holders of two-thirds of the
outstanding LNH Shares. The pro forma financial statements included in this
Joint Proxy Statement/Prospectus give effect to the EastGroup-LNH Merger on the
basis described in the notes thereto. See "Joint Proxy Statement/Prospectus
Summary -- Unaudited Pro Forma Consolidated Selected Financial Data."
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MARKET PRICES AND DIVIDENDS
EASTGROUP SHARES
On May 3, 1994, EastGroup Shares became listed on the NYSE under the symbol
"EGP." Prior to this date EastGroup Shares were listed on the AMSE under the
symbol "EGP." As of March 15, 1996, there were 4,245,083 EastGroup Shares
outstanding held of record by approximately 785 shareholders.
The following table sets forth the high and low sales prices during and the
cash distributions paid by EastGroup for the calendar quarters specified:
<TABLE>
<CAPTION>
DISTRIBUTION
DECLARED
QUARTER ENDED HIGH LOW PER SHARE
--------------------------------------------------------- ---- --- --------------
<S> <C> <C> <C>
March 31, 1993........................................... $20 1/4 $16 1/2 $ 0.38
June 30, 1993............................................ 19 1/8 17 0.38
September 30, 1993....................................... 23 5/8 18 1/4 0.38
December 31, 1993........................................ 24 1/4 20 1/8 0.41
March 31, 1994........................................... 21 1/8 19 0.43
June 30, 1994............................................ 20 7/8 18 1/4 0.43
September 30, 1994....................................... 19 7/8 18 3/8 0.43
December 31, 1994........................................ 19 3/4 16 1/2 0.45
March 31, 1995........................................... 19 5/8 17 1/4 0.45
June 30, 1995............................................ 20 18 3/8 0.45
September 30, 1995....................................... 20 3/4 19 0.47
December 31, 1995........................................ 22 3/8 20 1/4 0.47
March 31, 1996 (through March 15, 1996).................. 23 3/8 20 3/4 0.47
</TABLE>
On February 12, 1996, the most recent trading day on which EastGroup Shares
traded prior to the public announcement as to the agreement in principle between
EastGroup and Copley regarding the Merger (which occurred on February 13, 1996),
the closing price for EastGroup Shares on the NYSE was $21.625. As of March 15,
1996, the most recent trading day as to which it is practicable to provide
market price information, the closing price for EastGroup Shares on the NYSE was
$22.625 per share.
COPLEY SHARES
Copley Shares are traded on the AMSE under the symbol "COP." As of March
18, 1996 there were 3,584,350 Copley Shares outstanding held of record by
approximately 649 stockholders and one shareholder of record of the Class A
Share.
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The following table sets forth, for the periods indicated, the high and low
sales prices for Copley Shares and the cash distributions declared by Copley for
the calendar quarters specified:
<TABLE>
<CAPTION>
DISTRIBUTION
DECLARED PER
QUARTER ENDED HIGH LOW SHARE
--------------------------------------------------------- ---- --- --------------
<S> <C> <C> <C>
March 31, 1993........................................... $12 1/4 $ 9 1/4 $ 0.20
June 30, 1993............................................ 12 3/4 10 1/4 0.20
September 30, 1993....................................... 11 3/8 10 1/2 0.20
December 31, 1993........................................ 11 1/8 9 1/4 0.20
March 31, 1994........................................... 10 3/4 9 1/4 0.22
June 30, 1994............................................ 10 3/8 9 5/8 0.22
September 30, 1994....................................... 10 5/8 9 3/4 0.25
December 31, 1994........................................ 10 3/4 9 3/8 0.25
March 31, 1995........................................... 10 1/4 9 5/8 0.25
June 30, 1995............................................ 11 1/2 911/16 0.27
September 30, 1995....................................... 12 10 7/8 0.27
December 31, 1995........................................ 13 3/8 11 1/2 0.27
March 31, 1996 (through March 15, 1996).................. 15 1/4 12 5/8 0.27
</TABLE>
On February 12, 1996, the most recent trading day on which Copley Shares
were traded prior to the public announcement that EastGroup and Copley had
reached an agreement in principle with respect to the Merger (which occurred on
February 13, 1996), the closing price for Copley Shares on the AMSE was $14.00.
On March 15, 1996, the most recent trading day as to which it is practicable to
provide market price information, the closing price for Copley Shares on the
AMSE was $14.875.
COMPARISON OF SHAREHOLDER RIGHTS
Copley is a Delaware corporation, and the rights of Copley's stockholders
are currently governed by the DGCL and by Copley's Restated Certificate of
Incorporation, as amended (the "Copley Certificate") and the bylaws of Copley
(the "Copley Bylaws"). Upon consummation of the Merger, stockholders of Copley
will become shareholders of EastGroup, a Maryland REIT, and their rights as such
will be governed by the MGCL, the MD REIT Law, the EastGroup Declaration and
EastGroup Trustees Regulations.
The DGCL and the MGCL and MD REIT Law differ in many respects.
Additionally, the Copley Certificate and Copley Bylaws differ in certain
respects from the EastGroup Declaration and EastGroup Trustees Regulations. The
following is a summary of certain significant differences between the DGCL and
the MGCL and MD REIT Law and the respective organizational documents of Copley
and EastGroup which may affect the rights and interests of the Copley
stockholders. This summary does not purport to be complete and is qualified in
its entirety by reference to such statutes, charter documents, bylaws and
trustees regulations. Copies of the Copley Certificate and Copley Bylaws and the
EastGroup Declaration and EastGroup Trustees Regulations are available for
inspection at the principal offices of Copley and EastGroup, respectively, and
copies of each are available upon request at a nominal charge to cover costs.
LIMITED RIGHTS OF SHAREHOLDERS
Except as provided by the MGCL and the MD REIT Law, EastGroup shareholders
may take action only on the following matters: (i) termination of EastGroup;
(ii) amendment of the EastGroup Declaration; (iii) the election of trustees and
(iv) calling a special meeting of shareholders. The Copley Certificate does not
contain such limiting provisions.
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AMENDMENT OF CHARTER
Under the DGCL and the Copley Certificate, amendment of the Copley
Certificate requires the approval of the Board of Directors and the holders of a
majority of the outstanding Copley Shares, with the exception of certain
provisions of the Copley Certificate which require the approval of the holders
of 80 percent of the outstanding Copley Shares.
Under the MD REIT Law and the EastGroup Declaration, amendment of the
EastGroup Declaration requires the approval of the Board of Trustees and the
holders of two-thirds of the outstanding EastGroup Shares.
REPURCHASE AND REDEMPTION OF SHARES; RESTRICTIONS ON TRANSFER
The DGCL provides that a corporation generally may redeem or repurchase its
own shares of capital stock unless, after giving effect to such repurchase or
redemption, the capital of the corporation would be impaired, except that a
corporation may redeem or repurchase out of capital any of its own shares which
are entitled upon any distribution of assets to a preference over another class
of shares if such shares will be retired upon their acquisition and the capital
of the corporation is reduced in accordance with the DGCL.
The Copley Certificate further provides that any transfer of Copley Shares
that would prevent Copley from continuing to be qualified as a REIT, as
determined by Copley's Board of Directors, shall be void ab initio and the
intended transferee of such Copley Shares shall be deemed never to have had an
interest therein.
The MGCL does not permit a corporation to purchase or redeem its own shares
if after giving effect to such repurchase or redemption, (i) the corporation
would not be able to pay its indebtedness as it becomes due in the usual course
of business or (ii) the corporation's total assets would be less than its total
liabilities plus any amounts needed to satisfy preferential rights of
stockholders superior to the stock being repurchased or redeemed. The MD REIT
Law, however, provides that a REIT may provide in its declaration of trust that
any specified class of shares may be redeemed at the option of the REIT or of
the shareholders and may state the terms and conditions of such redemption.
The EastGroup Declaration provides that if the Board of Trustees shall, at
any time and in good faith, be of the opinion that the direct and indirect
ownership of EastGroup Shares has or may become concentrated to an extent which
threatens EastGroup's REIT status, then the Board of Trustees may call for the
redemption of such EastGroup Shares or any number of such EastGroup Shares. The
redemption price shall be determined in good faith by the Board of Trustees. Any
EastGroup Shares subject to redemption shall not be entitled to dividends,
voting rights and other benefits excepting the right to the payment of the
redemption price. Redeemed EastGroup Shares shall be cancelled.
PAYMENT OF DIVIDENDS
The DGCL provides that a corporation may, unless otherwise restricted by
its certificate of incorporation, declare and pay dividends out of surplus, or
if no surplus exists, out of its net profits for the current or preceding fiscal
year, provided that the amount of capital of the corporation following the
declaration and payment of the dividend is not less than the aggregate amount of
the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. The Copley Certificate also
states that holders of Copley Shares shall share ratably all dividends and
distributions.
The MGCL provides that a corporation may not declare and pay a dividend on
its shares in cash, property or its own stock if, after giving effect to the
dividend, (i) the corporation would not be able to pay its indebtedness as it
becomes due in the usual course of business, or (ii) the corporation's total
assets would be less than its total liabilities plus any amounts needed to
satisfy preferential rights of shareholders superior to the stock being
repurchased or redeemed. The EastGroup Declaration provides that the Board of
Trustees may declare and pay to EastGroup shareholders distributions, provided
that each distribution in cash or property shall be accompanied by a written
communication as to the federal income tax treatment of such distribution.
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SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATION TRANSACTIONS
The DGCL requires that a merger, consolidation or any sale, lease or
exchange of all or substantially all of a corporation's property and assets be
approved by a majority of the outstanding shares of the corporation entitled to
vote on such a matter, or a greater proportion, if required by the certificate
of incorporation. In addition, Copley is subject to the provisions of the
Section 203 of the DGCL which prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15 percent or more of the corporation's voting stock.
The Copley Certificate provides that, in addition to the provisions and
protections of the DGCL, a business combination transaction with an interested
stockholder requires the affirmative approval of the holders of at least eighty
percent of the outstanding Copley Shares. The eighty percent approval
requirement shall not apply if (i) Copley is at the time of the consummation of
the business combination transaction, and for the twelve months prior thereto
has been, the beneficial owner of a majority of the securities of the interested
stockholder, (ii) the business combination transaction has been approved by a
majority of disinterested directors, or (iii) the per share consideration to be
received in the transaction is at least equal to the highest per share price
paid by the interested stockholder when it became an interested stockholder or
within two years of the proposed transaction, whichever is higher, and the
consideration is in cash or the same form as the interested stockholder used to
acquire the largest number of shares the interested stockholder acquired.
Under the MGCL, the sale, lease, exchange or transfer of all or
substantially all of the assets of a corporation not in the ordinary course of
the business conducted by it, as well as any merger, consolidation or share
exchange, requires approval by holders of two-thirds of the shares of the
corporation entitled to vote on such matter. Similarly, the MD REIT Law requires
the approval of two-thirds of all the votes entitled to be cast of a trust to
approve a merger. The foregoing voting requirements may be increased or reduced
(but not to less than a majority) by a trust's articles of incorporation.
Under the MGCL, certain business combinations, including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities, between a Maryland
corporation or REIT and an interested shareholder who beneficially owns 10% or
more of the voting power of the corporation's shares or an affiliate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting stock of the corporation or an affiliate thereof are
prohibited for five years after the most recent date on which the interested
shareholder becomes an interested shareholder. Thereafter, any such business
combination must be recommended by the board of directors of the corporation or
board of trustees of a REIT and approved by the affirmative vote of at least (i)
80% of the votes entitled to be cast by holders of outstanding voting shares of
the corporation or REIT and (ii) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of the corporation or REIT other than
shares held by the interested shareholder with whom (or with whose affiliate)
the business combination is to be effected, unless, among other conditions, the
corporation's or REIT's shareholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the interested shareholder for its shares. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the board of directors of the corporation or board
of trustees of the REIT prior to the time that the interested shareholder
becomes an interested shareholder.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are
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employees of the corporation. "Control shares" are voting shares of stock which,
if aggregated with all other such shares of stock previously acquired by the
acquiror, or in respect of which the acquiror is able to exercise or direct the
exercise of voting power except solely by virtue of a revocable proxy, would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third; (ii) one-third or more but less than a majority; or (iii) a majority
of all voting power. Control shares do not include shares the acquiring person
is then entitled to vote as a result of having previously obtained shareholder
approval. A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses and
delivery of an "acquiring person statement"), may compel the corporation's board
of directors to call a special meeting of shareholders to be held within 50 days
of demand to consider the voting rights of the shares. If no request for a
meeting is made, the corporation may itself present the question at any
shareholders meeting.
Unless the charter or bylaws provide otherwise, if voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement within ten days following a control share acquisition then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition or of any meeting of shareholders at which the voting rights of such
shares are considered and not approved. Moreover, unless the charter or bylaws
provide otherwise, if voting rights for control shares are approved at a
shareholders' meeting and the acquiror becomes entitled to exercise or direct
the exercise of a majority or more of all voting power other shareholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation. Shareholders of EastGroup are subject to the terms of the
control share acquisition statue.
APPRAISAL RIGHTS
Under both the DGCL and the MGCL and MD REIT Law, a shareholder of a
corporation or trust engaging in certain transactions may, under certain
circumstances, receive cash in the amount of the fair value of his or her shares
(as appraised pursuant to judicial proceedings) in lieu of the consideration
such shareholder would otherwise receive in such transaction. Under the DGCL,
shareholders of a corporation are entitled to such appraisal rights only with
respect to certain statutory mergers or consolidations. Unless otherwise
provided in the certificate of incorporation, the DGCL does not grant appraisal
rights to (i) shareholders with respect to a merger or consolidation of a
corporation, the shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders, if such shareholders
receive only shares of the surviving corporation or shares of any other
corporation which are either listed on a national securities exchange or held of
record by more than 2,000 holders, or (ii) shareholders of a corporation
surviving a merger if no vote of the shareholders of such corporation is
required to approve the merger.
Under the MGCL and MD REIT Law, shareholders of a corporation are entitled
to appraisal rights in certain mergers, consolidations or share exchanges by
such corporation, or upon the disposition of all or substantially all of its
assets, as well as when such corporation amends its articles of incorporation or
declaration of trust in a way which alters the contractual rights of any
outstanding shares as expressly set forth in the articles of incorporation or
declaration of trust and substantially adversely affects such shareholders'
rights if the right to do so is not reserved in the articles of incorporation or
declaration of trust. However, except with respect to certain transactions
involving an interested stockholder, shareholders generally have no appraisal
rights with respect to their shares if (i) the shares are listed on a national
securities exchange, or (ii) the shares are that of the successor in the merger,
unless (a) the merger alters the contractual rights of
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the shares as expressly set forth in the articles of incorporation or
declaration of trust, and the articles of incorporation or declaration of trust
do not reserve the right to do so, or (b) the shares are to be changed or
converted in whole or in part in the merger into something other than either
shares in the successor or cash, scrip, or other rights or interests arising out
of provisions for the treatment of fractional shares in the successor.
Neither the Copley stockholders nor the EastGroup shareholders will have
appraisal rights as a result of the Merger.
RIGHTS AGREEMENT
Copley is a party to a Rights Agreement pursuant to which Copley
stockholders received one Copley Right for each Copley Share held by such
stockholder. Each Copley Right entitles the holder thereof to purchase from
Copley one Copley Share at a purchase price of $36.00 subject to adjustment in
certain circumstances. The Copley Rights are attached to the Copley Shares but
separate upon the earlier of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons has acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of the outstanding
Copley Shares (the "Acquiror"), or (ii) 10 business days following the
commencement of a tender offer or exchange offer that would result in a person
or group owning 30% or more of the outstanding Copley Shares (such date referred
to herein as the "Distribution Date"). Unless earlier redeemed by Copley, the
Copley Rights expire at the close of business on July 19, 2000.
In the event that (i) Copley is the surviving entity in a merger with an
Acquiror and the Copley Shares are not changed or exchanged, (ii) a person
becomes the beneficial owner of more than 15% of the then outstanding Copley
Shares except pursuant to an offer for all outstanding Copley Shares which the
independent directors determine to be fair to, and otherwise in the best
interests of, Copley stockholders, (iii) an Acquiror engages in one or more
"self-dealing" transactions as set forth in the Rights Agreement, or (iv) during
such time as there is an Acquiror, an event occurs which result in such
Acquiror's ownership interest being increased by more than 1%, each holder of a
Copley Right will thereafter have the right to receive, upon exercise, that
number of Copley Shares (or, in certain circumstances, cash, property or other
securities of Copley) which equals the exercise price of the Copley Right
divided by one-half of the current market price (as defined in the Rights
Agreement) of the Copley Shares at the date of the occurrence of the event.
However, Copley Rights are not exercisable following the occurrence of any of
the events set forth above until such time as the Copley Rights are no longer
redeemable by Copley as set forth below. Notwithstanding any of the foregoing,
following the occurrence of any of the events set forth above, all Copley Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by the Acquiror will be null and void.
In the event that, at any time following the date an Acquiror becomes such,
(i) Copley is acquired in a merger or other business combination transaction in
which Copley is not the surviving entity or the Copley Shares are changed or
exchanged (other than a merger which follows an offer determined by the Copley
Board to be fair as described in clause (ii) of the preceding paragraph), or
(ii) 50% or more of Copley's assets or earning power is sold or transferred,
each holder of a Copley Right (except Copley Rights which previously have been
voided as set forth above) shall thereafter have the right to receive, upon
exercise, that number of shares of common stock of the acquiring company which
equals the exercise price of the Copley Right divided by one-half of the current
market price of such common stock at the date of the occurrence of the event.
The purchase price payable, and the number of Copley Shares or other
securities or property issuable, upon exercise of the Copley Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Copley
Shares, (ii) if holders of the Copley Shares are granted certain rights or
warrants to subscribe for Copley Shares or securities convertible into Copley
Shares at less than the current market price of the Copley Shares, or (iii) upon
the distribution to holders of the Copley Shares of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments amount to at least 1% of the purchase
price. No fractional Copley Shares will be issued and, in
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lieu thereof, an adjustment in cash will be made based on the market price of
the Copley Shares on the last trading date prior to the date of exercise.
At any time until ten days following the date an Acquiror becomes such,
Copley may redeem the Copley Rights in whole, but not in part, at a price of
$0.01 per Copley Right. After the redemption period has expired, Copley's right
of redemption may be reinstated under certain circumstances including Board
approval of the Merger. Immediately upon the action of the Board of Directors
ordering redemption of the Copley Rights, the Copley Rights will terminate and
the only right of the holders of Copley Rights will be to receive the $0.01
redemption price. Copley intends to redeem the Copley Rights prior to the
Effective Time.
Until a Copley Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of Copley, including, without limitation, the right
to vote or to receive dividends.
Other than those provisions relating to the principal economic terms of the
Copley Rights, any of the provisions of the Copley Rights Agreement may be
amended by the Board of Directors of Copley prior to the Distribution Date.
After the Distribution Date, the provisions of the Rights Agreement may be
amended by the Board in certain circumstances. Copley has amended the Rights
Agreement to provide that the execution of the Merger Agreement and the
consummation of the Merger will not give rise to the occurrence of a
Distribution Date or the occurance of a date upon which an Acquiror becomes
such.
EastGroup is not a party to any similar agreement.
CUMULATIVE VOTING
Under the DGCL, a corporation may provide in its certificate of
incorporation for cumulative voting at all elections of directors. Under
cumulative voting, each share entitled to vote in the election of directors has
such number of votes as is equal to the number of directors to be elected. A
stockholder may cast all of his or her votes for a single candidate, or may
allocate his or her votes among as many candidates as such stockholder may
choose. The Copley Certificate does not provide for cumulative voting.
Under the MGCL and MD REIT Law, cumulative voting in the election of
directors and trustees is permitted but not required. The EastGroup Declaration
provides for cumulative voting in the election of trustees.
CLASSIFIED BOARD
The DGCL permits, but does not require, the adoption of a "classified"
board of directors with staggered terms under which each year some but not all
of the directors are elected for a term of greater than one year. The Copley
Certificate does not provide for a classified board.
The MGCL provides that a corporation's directors may be divided into up to
five classes, with the term of office of each director or class of directors to
be provided in the bylaws, except that the term of office of any director or
class of directors may not be longer than five years and the term of office of
at least one class shall expire each year. The MD REIT Law further provides that
trustees shall be elected at least every third year at an annual meeting of
shareholders. Neither the EastGroup Declaration nor the EastGroup Trustees
Regulations provide for a classified board.
CHANGE IN NUMBER OF DIRECTORS OR TRUSTEES
The DGCL permits the board of directors of a corporation to change the
authorized number of directors by amendment to the bylaws or in the manner
provided in the bylaws. However, if the certificate of incorporation fixes the
number of directors, a change in the number of directors may be made only by an
amendment of such certificate. The Copley Bylaws provide that Copley shall have
not less than three directors and authorize the Copley directors by resolution
to fix the exact number of directors.
The MGCL and MD REIT Law provides than a Maryland corporation shall have
the number of directors specified in its articles of incorporation or
declaration of trust until such number is changed by the bylaws or trustees
regulations. The bylaws may alter the number fixed in the articles of
incorporation by either
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fixing a new number or by authorizing a majority of the entire board of
directors to alter, within specified limits, the number of directors set by the
articles of incorporation or the by-laws. The EastGroup Trustees Regulations
provide that EastGroup shall have not less than three nor more than nine
trustees and authorize the EastGroup trustees, by resolution, to fix within
these limits the exact number of trustees.
REMOVAL OF DIRECTORS OR TRUSTEES
The DGCL provides that any director, or the entire board of directors, may
be removed with or without cause by the holders of a majority of the shares then
entitled to vote at an election of directors.
The Copley Bylaws provide that any director may be removed, with or without
cause, by the affirmative vote of the holders of a majority of shares then
entitled to vote at an election of directors except that the directors elected
by the holders of a particular class or series of stock may be removed without
cause only by vote of the holders of a majority of the outstanding shares of
such class or series.
The MGCL provides that, subject to certain special voting requirements for
corporations with cumulative voting or classified boards and unless the
corporation's charter provides otherwise, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
shares entitled to vote for directors. For corporations with cumulative voting,
unless the corporation's charter otherwise provides, a director may not be
removed without cause if the votes cast against his removal would be sufficient
to elect him if cumulatively voted at an election of the entire board of
directors. The EastGroup Declaration provides that any trustee may be removed
for cause by the unanimous vote of the remaining trustees, with or without
cause, by the affirmative vote of the holders of not less than two-thirds of all
the votes then outstanding.
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND TRUSTEES
The DGCL and the MGCL generally have similar provisions regarding
indemnification by a corporation of its officers, directors, trustees, employees
and other agents. Both the DGCL and the MGCL expressly provide that the
indemnification provided for therein shall not be deemed exclusive of any
indemnification right under any bylaw, trustees regulations, agreement, vote of
shareholders or disinterested directors or trustees. In addition, the MGCL
provides that the termination of any proceeding by conviction, or upon a plea of
"no contest" or entry of an order of probation prior to judgment, creates a
rebuttable presumption that the director or trustee did not meet the requisite
standard of conduct for indemnification, whereas the DGCL provides that such
terminations of proceedings will not, of themselves, create such a presumption.
Under the EastGroup Declaration, EastGroup is required to indemnify its trustees
and officers to the fullest extent permitted by Maryland law as currently
existing or later amended (but in the case of such amendment, only to the extent
such amendment permits broader indemnification rights than permitted prior to
such amendment). See "Indemnification Provisions."
SPECIAL MEETINGS OF SHAREHOLDERS
The DGCL provides that special meetings of stockholders may be called only
by the board of directors or such other persons as are authorized by the
certificate of incorporation or the bylaws. The Copley Bylaws provide that a
special meeting of stockholders may be called by the Board of Directors, by a
majority of the independent directors or by the Chairman of the Board of
Directors.
The EastGroup Trustees Regulations provide that special meetings of
shareholders may be called by the Managing Trustee or by any two trustees or,
upon the written request of shareholders holding not less than 25% of the
outstanding EastGroup Shares, by any officer or trustee.
ACTION BY SHAREHOLDERS WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, the DGCL
permits action to be taken by consent in writing signed by the holders of
outstanding shares having sufficient votes to approve such action. The Copley
Certificate provides that any action required or permitted to be taken at any
annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent
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<PAGE> 110
in writing, setting forth the action so taken, shall be signed by the holders of
all of the outstanding shares entitled to vote on such action. Neither the
EastGroup Declaration nor the MD REIT Law contains any such provisions.
LIABILITY OF SHAREHOLDERS AND OTHERS
In general, shareholders of a corporation (such as Copley) whose shares are
fully paid and nonassessable are not liable for the obligations of the
corporation. EastGroup is not a corporation. The EastGroup Declaration provides
that no trustee shall be subject to any personal liability to any third party by
reason of any act, omission or error in connection with EastGroup's property or
the affairs of EastGroup unless such act, omission or error constitutes bad
faith, willful misfeasance, gross negligence or reckless disregard of duties.
Each shareholder of EastGroup shall be fully indemnified by EastGroup for any
personal liability incurred in connection with the administration, property or
affairs of EastGroup as a result of any claims to which a person is subject to
by reason of being or having been a shareholder of EastGroup. The EastGroup
Declaration also provides that the shareholders of EastGroup shall not be liable
to assessment by or on behalf of EastGroup, that the trustees shall have no
power to bind the shareholders personally, and that the shareholders shall not
be liable on any claim against or obligation of EastGroup. The EastGroup
Declaration also provides that all persons shall look only to EastGroup property
for satisfaction of claims of any nature arising in connection with the affairs
of EastGroup.
It is possible that certain states may not recognize the limited liability
of shareholders of EastGroup notwithstanding the provision in the EastGroup
Declaration that shareholders shall not be subject to any personal liability for
the acts or obligations of EastGroup. In certain states shareholders may be held
personally liable for claims against EastGroup (such as tort claims, contract
claims where the underlying agreement does not specifically exclude shareholder
liability, claims for taxes and other statutory liabilities) to the extent
claims are not satisfied by EastGroup. Upon payment of any such liability,
however, the shareholder will be entitled to reimbursement from the assets of
EastGroup, to the extent such assets are sufficient to satisfy the claim.
EastGroup maintains insurance which the trustees consider adequate to cover
foreseeable tort claims. Since the inception of EastGroup or its predecessors in
1969, no claim has ever been asserted against any shareholder personally for any
obligation of EastGroup.
DISSOLUTION
Under the DGCL, voluntary dissolution of a corporation generally requires
the adoption of a board resolution approving the dissolution and the affirmative
vote of a majority of the outstanding shares entitled to vote thereon.
Under the MGCL, the voluntary dissolution of a corporation requires the
affirmative vote of a majority of the entire board of directors and the
affirmative vote of the holders of two-thirds of the shares entitled to vote
thereon. This shareholder voting requirement may be increased or reduced (but
not to less than a majority) by the corporation's charter. Under EastGroup's
Declaration, the vote of two-thirds in interest of EastGroup Shares is necessary
to consent to the termination of EastGroup.
INSPECTION OF BOOKS AND RECORDS
Under the DGCL, any stockholder of record has a right to examine the books
and records and the stockholder list of the corporation for a proper purpose.
The DGCL defines a proper purpose as any purpose reasonably related to such a
person's interest as a stockholder, and allows a stockholder of record to
inspect the stockholder list during the 10-day period preceding a stockholders
meeting for any purpose germane to the meeting.
Under the MGCL, any shareholder has a right to inspect and copy the bylaws,
minutes of the proceedings of shareholders, annual statement of affairs, and
voting trust agreements on file at the corporation's principal office. In
addition, any shareholder or shareholders who together are, and for at least six
months have been, holders of record of at least five percent of the outstanding
shares of any class of the corporation may inspect and copy the corporation's
books of account and stock ledger. Additionally, the EastGroup Declaration
94
<PAGE> 111
provides that shareholders and appropriate Federal and State authorities which
so require shall be entitled to inspect the books of account of EastGroup and
the share register during normal business hours under such reasonable conditions
as may be established by the Board of Trustees.
DESCRIPTION OF CAPITAL STOCK OF EASTGROUP
EastGroup is authorized to issue up to 10,000,000 EastGroup Shares and, if
the proposal to increase the number of authorized EastGroup Shares is adopted,
EastGroup will be authorized to issue 20,000,000 EastGroup Shares. Holders of
EastGroup Shares will be entitled to receive such dividends as may be declared
from time to time by the trustees out of funds legally available therefor. All
of the issued and outstanding EastGroup Shares are fully paid and non-assessable
and have equal voting, distribution and liquidation rights. EastGroup Shares
shall not be subject to call or redemption; provided, however, if the EastGroup
trustees determine that the direct or indirect ownership of EastGroup Shares has
or may become concentrated to an extent which threatens EastGroup's status as a
REIT, the trustees may call for the redemption of a number of EastGroup Shares.
Each EastGroup Share is entitled to one vote on matters put to a vote of
the shareholders, except that in the election of trustees, shareholders shall
have cumulative voting rights. This means an EastGroup shareholder is entitled
to as many votes as equal the number of EastGroup Shares owned by him or her
multiplied by the number of trustees to be elected. Shareholders may cast all
their votes for one trustee candidate or distribute the votes as they so
determine.
INDEMNIFICATION PROVISIONS
Under the EastGroup Declaration, EastGroup is required to indemnify its
trustees and officers to the fullest extent permitted by Maryland law as
currently existing or later amended (but in the case of such amendment, only to
the extent that it permits broader indemnification rights than permitted prior
to such amendment). Each trustee and officer of EastGroup has a written
agreement with EastGroup which requires, among other things, that EastGroup
shall indemnify the trustee or officer to the fullest extent permitted under
Maryland law. The EastGroup Declaration provides that its trustees shall not be
personally liable to EastGroup or its shareholders except for acts, omissions or
errors constituting bad faith, willful misfeasance, gross negligence or reckless
disregard of a trustee's duties. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to trustees, officers and
controlling persons of EastGroup pursuant to the foregoing provisions or
otherwise, EastGroup has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
PROPOSAL 2 -- ELECTION OF TRUSTEES
(FOR EASTGROUP SHAREHOLDERS ONLY)
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information available to EastGroup
with respect to EastGroup Shares owned by each trustee, each executive officer,
all trustees and executive officers as a group, and each
95
<PAGE> 112
person who is the beneficial owner, as determined by the rules of the SEC, of
more than 5% of the outstanding EastGroup Shares.
<TABLE>
<CAPTION>
NO. OF
EASTGROUP PERCENTAGE
SHARES OF
BENEFICIALLY EASTGROUP
TRUSTEES, EXECUTIVE OFFICERS AND MORE THAN 5% SHAREHOLDERS OWNED SHARES
- ---------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Alexander G. Anagnos.................................................. 6,700(1) * %
H.C. Bailey, Jr....................................................... 26,663(2) *
Harold B. Judell...................................................... 12,460(2) *
John N. Palmer........................................................ 7,500(1) *
David M. Osnos........................................................ 11,000(2) *
Leland R. Speed....................................................... 116,762(3) 2.73
David H. Hoster II.................................................... 49,292(4) 1.16
N. Keith McKey........................................................ 23,890(5) 0.56
All trustees and executive officers as a group........................ 254,267(6) 5.86
Copley(7)............................................................. 213,438 5.03
</TABLE>
- ---------------
* Less than 0.5%
(1) Includes 6,500 EastGroup Shares the indicated person has the right to
acquire under the EastGroup Properties 1991 Trustees Stock Option Plan, as
amended (the "Trustees Plan").
(2) Includes 8,000 EastGroup Shares the indicated person has the right to
acquire under the Trustees Plan.
(3) Includes 25,000 EastGroup Shares that Mr. Speed has the right to acquire
pursuant to exercisable options granted under EastGroup's 1994 Incentive
Plan, and does not include 79,994 EastGroup Shares beneficially owned by Mr.
Speed's spouse and children in which he disclaims beneficial ownership.
(4) Includes 18,000 EastGroup Shares that Mr. Hoster has the right to acquire
pursuant to exercisable options granted under EastGroup's 1994 Incentive
Plan and 3,120 EastGroup Shares beneficially owned by Mr. Hoster's wife and
daughters, as to which he disclaims beneficial ownership.
(5) Includes 12,500 EastGroup Shares that Mr. McKey has the right to acquire
pursuant to exercisable options granted under EastGroup's 1994 Incentive
Plan and includes 1,035 EastGroup Shares beneficially owned by Mr. McKey's
children, as to which he disclaims beneficial ownership.
(6) Includes 30,500 EastGroup Shares that trustees of EastGroup have the right
to acquire under the Trustees Plan and 57,000 EastGroup Shares that officers
of EastGroup have the right to acquire pursuant to exercisable options
granted under EastGroup's 1994 Incentive Plan.
(7) The nature of Copley's beneficial ownership is described under "Voting and
Proxy Information."
ELECTION OF TRUSTEES -- NOMINEES
EastGroup's Declaration provides that the number of trustees shall not be
less than three nor more than twelve, and that the number of trustees shall be
set forth in the Trustees Regulations. The Trustees Regulations provide that
EastGroup shall have seven trustees. All seven positions on the Board of
Trustees are to be filled by the vote of the shareholders at the EastGroup
Meeting. Each person so elected shall serve until EastGroup's next annual
meeting and until his successor is elected and qualified.
EastGroup's trustees recommend a vote FOR the seven nominees listed below.
Except where authority to do so has been withheld, it is the intention of the
persons named in the accompanying form of proxy to vote at the EastGroup Meeting
FOR these nominees, reserving the right, however, to cumulate their votes and
distribute them among the nominees in their discretion so as to elect as many of
the nominees as possible. Each of the nominees listed below was elected a
trustee at EastGroup's 1995 annual meeting of shareholders.
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<PAGE> 113
Although the trustees do not contemplate that any of the nominees listed
below will be unable to serve, if such a situation arises prior to the EastGroup
Meeting, the enclosed proxy will be voted in accordance with the best judgment
of the person or persons voting the proxy.
<TABLE>
<CAPTION>
NAME, POSITION(S) AND PRINCIPAL OCCUPATION AND
TENURE WITH EASTGROUP AGE BUSINESS FOR PAST FIVE YEARS(1)
- ---------------------- --- --------------------------------------------------------------
<S> <C> <C>
Alexander G. 69 Financial Advisor with WR Family Associates.
Anagnos.............
Trustee since 1994
H. C. Bailey, Jr...... 56 President of H. C. Bailey Company (real estate development and
Trustee since 1980 investment); President of Bailey Mortgage Company (mortgage
banking) and Chairman of the Board and Chief Executive Officer
and President of Security Savings & Loan Association(2) until
1992.
David H. Hoster II.... 50 President and Trustee of EastGroup since 1993 and Executive
Trustee and Vice President of EastGroup until 1993; President of LNH since
President 1995 and Executive Vice President of LNH from 1992 until 1995;
since 1993 Executive Vice President of Congress Street Properties, Inc.
("Congress Street") from 1988 to 1994, Eastover Corporation
from 1988 to 1994, EB, Inc. from 1993 to 1994, Parkway from
1988 to 1994, and Rockwood National Corporation from 1988 to
1994.
Harold B. Judell...... 80 Senior partner in the law firm of Foley & Judell LLP
Trustee since 1981 (municipal bond attorneys).
John N. Palmer........ 61 Chairman of Mobile Telecommunication Technologies Corp. since
Trustee since 1994 1989
David M. Osnos........ 64 Partner in the law firm of Arent, Fox, Kintner, Plotkin &
Trustee since 1993 Kahn.
Leland R. Speed....... 63 Chief executive officer of EastGroup, Parkway and LNH; served
Trustee since 1978 as Chief Executive Officer of Eastover Corporation, Congress
and Managing Trustee Street, and Rockwood National Corporation until 1994 and EB,
and President since Inc. until 1995.
1983
</TABLE>
- ---------------
(1) Unless otherwise stated, each nominee has held the positions indicated for
at least the past five years.
(2) Security Savings & Loan Association was seized by the Resolution Trust
Company in 1992.
(3) The principal businesses of Congress Street, Eastover Corporation, EB, Inc.,
LNH and Parkway are described under "-- Certain
Transactions -- Expense-Sharing Arrangements."
97
<PAGE> 114
OTHER DIRECTORS AND TRUSTEESHIPS
Nominees to EastGroup's Board of Trustees serve on the Boards of Directors
or the Boards of Trustees of the following publicly-held companies:
<TABLE>
<CAPTION>
NOMINEE COMPANY
---------------------------------- -------------------------------------------------
<S> <C>
H.C. Bailey, Jr................... LNH
Parkway
Harold B. Judell.................. Sizeler Property Investors, Inc.
David M. Osnos.................... VSE Corporation
Washington Real Estate Investment Trust
John N. Palmer.................... Entergy Corporation
Mobile Telecommunication Technologies Corp.
Deposit Guaranty National Bank
Leland R. Speed................... Farm Fish, Inc.
First Mississippi Corporation
KLLM Transport Services, Inc.
LNH
Parkway
</TABLE>
COMMITTEES AND MEETING DATA
The Audit Committee of EastGroup's Board of Trustees consists of Messrs.
Bailey, Judell and Osnos. The Audit Committee met two times during EastGroup's
1995 fiscal year. The functions performed by this committee consist principally
of conferring with and reviewing the reports of EastGroup's independent
accountants and bringing to the entire Board of Trustees for review those items
relating to audits or to accounting practices which the Audit Committee believes
merit such review.
The Compensation Committee of EastGroup's Board of Trustees consists of
Messrs. Bailey (Chairman), Palmer and Anagnos. Its function is to recommend
compensation levels for trustees, review compensation levels for executive
officers and administer 1994 Incentive Plan. The Compensation Committee did not
meet during EastGroup's 1995 fiscal year.
EastGroup does not have a standing nominating committee or any committee
performing a similar function.
The Board of Trustees held seven meetings during EastGroup's 1995 fiscal
year. Each trustee attended at least 86% of the aggregate of the total number of
meetings of the Board of Trustees and the total number of meetings held by all
committees of the Board of Trustees on which he served.
EXECUTIVE OFFICERS
The following is a list of the EastGroup's executive officers:
<TABLE>
<CAPTION>
NAME, POSITION AND PRINCIPAL OCCUPATION AND BUSINESS
TENURE WITH EASTGROUP(1) AGE EXPERIENCE FOR PAST FIVE YEARS
- ---------------------------------------- --- ----------------------------------------
<S> <C> <C>
Leland R. Speed ........................ 63 See table under "-- Election of
Managing Trustee since 1983 Trustees -- Nominees."
David H. Hoster II ..................... 50 See table under "-- Election of
Trustee and President since 1993 Trustees -- Nominees."
N. Keith McKey ......................... 44 Executive Vice President of EastGroup
Executive Vice President since 1993, since 1993 and Chief Financial Officer
Chief Financial Officer and Secretary since 1992; Senior Vice President of LNH
since 1992 since 1992; Senior Vice President of
Congress Street, Eastover Corporation,
EB, Inc., Parkway and Rockwood National
Corporation until 1994.
</TABLE>
- ---------------
(1) There are no family relationships between any of the trustees or executive
officers of EastGroup.
98
<PAGE> 115
EXECUTIVE COMPENSATION
The following table summarizes, for the fiscal years ended December 31,
1995, 1994 and 1993, the amount of the compensation paid by EastGroup to its
Chief Executive Officer and all other executive officers whose cash compensation
during 1995 exceeded $100,000 (the "Named Officers").
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION(1)(2) COMPENSATION AWARDS
---------------------------------------------- ------------------------------
OTHER LTIP
ANNUAL PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS(5) $(6) COMPENSATION(7)
- --------------------------- ---- -------- -------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leland R. Speed............ 1995 $129,863(3) $139,014(4) -0- -0- -0- $ 7,500
Chief Executive Officer 1994 $139,423 $ 58,715 -0- 50,000 $ 23,047 $ 5,145
1993 $113,367 -0- -0- -0- $ 13,608 $ 6,664
David H. Hoster II......... 1995 $174,745 $140,351(4) -0- -0- -0- $ 7,500
President 1994 $ 89,977 $ 42,314 -0- 40,000 $ 21,203 $ 5,145
1993 $ 72,240 $ 12,230 -0- -0- $ 12,519 $ 4,991
N. Keith McKey............. 1995 $127,212 $102,256(4) -0- -0- -0- $ 7,500
Executive Vice President, 1994 $ 63,911 $ 30,103 -0- 25,000 $ 13,828 $ 4,397
Chief Financial Officer 1993 $ 51,900 $ 3,669 -0- -0- $ 8,165 $ 2,878
and Secretary
</TABLE>
- ---------------
(1) Until December 31, 1994, the executive officers of EastGroup also served as
executive officers of all the Expense-Sharing Participants (as defined
below). See "-- Certain Transactions -- Expense-Sharing Arrangements." Their
salaries were paid by Congress Street and then allocated among the Expense-
Sharing Participants in accordance with the allocation formula set forth in
the expense-sharing agreement.
(2) For 1993 and 1994, all amounts are EastGroup's share of the particular Named
Officer's compensation as allocated under the expense-sharing agreement.
(3) Mr. Speed's salary is paid one-half by EastGroup and one-half by Parkway, of
which he is also Chief Executive Officer. See "-- Certain
Transactions -- Expense-Sharing Arrangements." This amount is EastGroup's
share of Mr. Speed's compensation.
(4) This is the amount of incentive compensation payable to the Named Officer
under the 1994 Incentive Plan. The amount was determined as described under
"-- Compensation Committee Report," and was paid two-thirds in cash and
one-third in EastGroup Shares.
(5) These options were granted under EastGroup's 1994 Incentive Plan and become
exercisable with respect to one-half the shares on the first anniversary
date of grant and one-half the shares on the second anniversary date of
grant.
(6) These payments were made under Incentive Compensation Units granted under
EastGroup's 1989 Incentive Plan (the "1989 Plan"). The amount for 1994
includes a payment made in December 1994 in consideration of the officer
agreeing to cancel the remaining term of the Incentive Compensation Units,
which payment was made in EastGroup Shares. An Incentive Compensation Unit
was a right to receive an amount equal to the dividend paid on a specified
number of EastGroup Shares during a five year period beginning on the date
of the grant of the unit. The amount that was payable with respect to an
Incentive Compensation Unit was credited to an account for the holder of
such unit. The grantee of the Incentive Compensation Unit was entitled to a
cash payment of 20% of the amount in the account on the first anniversary
date of its grant, 40% on the second anniversary date, 60% on the third
anniversary date, 80% on the fourth anniversary date and 100% on the fifth
anniversary date.
(7) For 1995, this is EastGroup's discretionary contribution to its 401(k) Plan
for the Named Officer's benefit and for 1993 and 1994 this amount is
EastGroup's share of Congress Street's discretionary contribution to a
401(K) plan for the respective Named Officer's benefit.
Option Grants. No options were granted to the Named Officers during the
year ended December 31, 1995.
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<PAGE> 116
Option Exercises and Year End Values. No options were exercised by the
Named Officers during 1995. The following table shows the year end value of
unexercised in-the-money options held by the Named Officers. Year end values are
based upon the closing price of EastGroup Shares on the NYSE on December 29,
1995 ($21.375).
AGGREGATED OPTIONS/SAR EXERCISES WITH LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NAME
- ---------------------------------------------- NUMBER OF UNEXERCISED VALUE OF
OPTIONS AT FY-END (#) UNEXERCISED IN-THE-MONEY
---------------------------- OPTIONS AT FY-END($)
EXERCISABLE/UNEXERCISABLE(1) ------------------------
EXERCISABLE/UNEXERCISABLE
<S> <C> <C>
Leland R. Speed............................... 25,000/25,000 $59,375/$59,375
Chief Executive Officer
David H. Hoster II............................ 20,000/20,000 $47,500/$47,500
President
N. Keith McKey................................ 12,500/12,500 $29,687.50/$29,687.50
Executive Vice President, Chief Financial
Officer and Secretary
</TABLE>
- ---------------
(1) These options, both exercisable and unexercisable, represent options granted
to the Named Officer on September 22, 1994 under the 1994 Incentive Plan
Compensation Committee Report.
The Compensation Committee of the Board of Trustees consists of Messrs.
Bailey, Palmer and Anagnos. The Compensation Committee believes that the main
purpose of base compensation is to provide sufficient base compensation to the
executive officers of EastGroup in relation to salary levels for other real
estate companies and the officer's level of responsibility. The base
compensation of Mr. Speed, the chief executive officer of EastGroup, is shared
equally by EastGroup and Parkway, of which Mr. Speed is also chief executive
officer. The EastGroup Compensation Committee and Parkway Compensation Committee
jointly determine Mr. Speed's base salary. The Compensation Committee considered
a number of factors in setting his compensation, the most important of which
were the level of compensation paid to the chief executive officers of other
real estate companies the same relative size as EastGroup, the success of
EastGroup's recent program of acquiring new properties and his importance in
delineating and implementing EastGroup's strategic plans.
The Compensation Committee has determined that the primary goals of
EastGroup's compensation policies should be as follows:
- To provide total compensation opportunities for executive officers
which are competitive with those provided to persons in similar positions
with which EastGroup competes for employees.
- To strengthen the mutuality of interest between management and
shareholders through the use of incentive compensation directly related to
corporate performance and through the use of stock-based incentives that
result in increased EastGroup Share ownership by executive officers.
The Compensation Committee believes that incentive compensation payable to
the executive officers of EastGroup should be based upon EastGroup's performance
and align the interests of management and EastGroup's shareholders. In 1994, the
Compensation Committee, in conjunction with an independent compensation
consultant, formulated the 1994 Incentive Plan. The 1994 Incentive Plan was
approved by the EastGroup shareholders in December 1994. Under the 1994
Incentive Plan, each year the Compensation Committee establishes a goal for FFO
per share, a minimum level for FFO per share below which incentive compensation
should not be paid, and an incentive award payout objective for each executive
officer. Two-thirds of any incentive award is paid in cash and one-third in
EastGroup Shares. For 1995, the Compensation Committee computed target FFO
before bonus accruals of $2.25 as the minimum FFO per share necessary for any
bonus to be paid, and $2.35 as the target FFO per share under which management
would receive their target bonuses. The target bonus amounts were 30% of base
salary for Mr. Speed and 45% of base salary for
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<PAGE> 117
Messrs. Hoster and McKey. To the extent EastGroup's actual FFO per share
exceeded $2.35 but was less than $2.40, the target bonus amounts would be
increased pro rata by up to one-third of the target amount. If EastGroup's 1995
actual FFO per share was more than $2.40 but less than $2.55, the target bonus
amounts would be increased pro rata by up to an additional two-thirds of the
target amount. The Compensation Committee determined the FFO targets based upon
its analysis of EastGroup's internal projected financial results for 1995 and
the estimates of 1995 FFO prepared by independent securities analysts who
followed EastGroup. The Compensation Committee believed that the shareholders of
EastGroup would be benefitted significantly if the FFO goal was met and would be
further benefitted if such goal were exceeded, and that management should be
compensated for the benefits derived by EastGroup shareholders. The target bonus
amounts were set by the Compensation Committee after consultation with the
compensation consultant who helped the Compensation Committee formulate the 1994
Incentive Plan.
EastGroup's 1995 FFO per share before bonus awards was $2.50. After
consideration, the Compensation Committee believed that each of Mr. Speed, Mr.
McKey and Mr. Hoster should be paid the amount of incentive compensation
provided by the above formula, under which Messrs. Speed, Hoster and McKey
received bonuses with respect to 1995 of $139,014, $140,351 and $102,256
respectively, two-thirds of which were paid in cash and one-third of which was
paid in EastGroup Shares.
The Compensation Committee also believes that stock based incentive
compensation in the form of stock options helps to align the interest of
EastGroup and its shareholders. No such awards were made in 1995 because the
awards made in 1994 were made relatively late in the year and the Compensation
Committee did not believe additional awards were warranted in 1995. The
Compensation Committee intends, however, to make grants of additional options to
executive officers in the future where it deems such grants appropriate.
H.C. BAILEY, JR.
JOHN N. PALMER
ALEXANDER G. ANAGNOS
This Compensation Committee Report is not a part of EastGroup's Prospectus
or the Registration Statement and shall not be deemed incorporated by reference
by any general statement incorporating by reference this document or any portion
thereof into any filing under the Securities Act or the Exchange Act and shall
not otherwise be deemed filed under such acts.
101
<PAGE> 118
Performance Comparison. Set forth below is a line graph comparing the
percentage change in the cumulative return to shareholders on the EastGroup
Shares over the five years ending December 31, 1995 against the cumulative
return of the Standard & Poor's 500 ("S&P 500"), and the Equity REIT Index
prepared by the National Association of Real Estate Investment Trusts ("NAREIT
Equity"). This performance comparison is not a part of EastGroup's Prospectus or
Registration Statement nor is it to be incorporated by reference by any general
statement incorporating by reference this document or any portion thereof in any
filing under the Securities Act or the Exchange Act, and shall not alleviate the
need to be filed under such acts.
<TABLE>
<CAPTION>
Measurement Period NAREIT Eq-
(Fiscal Year Covered) EastGroup S&P 500 uity
<S> <C> <C> <C>
1990 100 100 100
1991 121.8 130.5 135.7
1992 177.6 140.6 155.5
1993 234.7 154.6 186.1
1994 224.3 156.6 192.0
1995 283.3 215.3 221.3
</TABLE>
Trustees' Fees. Under EastGroup's standard compensation arrangements with
trustees (except Mr. Speed and Mr. Hoster, who are salaried officers), trustees
are paid a monthly stipend of $500, plus $1,000 and reimbursement of actual
expenses for attendance at each meeting of the Board of Trustees and $750 and
reimbursement of expenses for each meeting of a committee established by the
Board of Trustees. Only one fee is paid in the event more than one meeting is
held on a single day.
Trustees Stock Option Plan. At the 1991 annual meeting, the shareholders
of EastGroup approved the Trustees Plan. The Trustees Plan authorizes the
issuance of options for up to 100,000 EastGroup Shares to trustees of EastGroup
who are not, and have not been for at least one year prior to the date of
determination, employees of EastGroup ("Non-Employee Trustees"). Under the
Trustees Plan, each Non-Employee Trustee of EastGroup on March 15, 1991 was
automatically granted an option to purchase 5,000 EastGroup Shares. Each person
who first becomes a Non-Employee Trustee after March 15, 1991 will automatically
be granted an option to purchase 5,000 EastGroup Shares on the date the person
becomes a Non-Employee Trustee, if such EastGroup Shares are available. Each
Non-Employee Trustee will also be granted an option to purchase 1,500 additional
EastGroup Shares on the date of any annual meeting at which such Non-Employee
Trustee is reelected to the Board of Trustees. The option exercise price is the
closing price of an EastGroup Share if EastGroup Shares are listed on an
exchange or the average between the bid and the asked price for the date if the
EastGroup Shares are traded over-the-counter (or, if no EastGroup Shares were
publicly traded on that date, the next preceding date that such EastGroup Shares
were so traded). Such options are exercisable in full on the date of grant and
expire ten years after the date of grant, or, if earlier, six months after the
termination of the optionee's service as a Non-Employee Trustee, unless such
service is terminated by reason of death, in which case the optionee's legal
representative shall have one year in which to exercise the option.
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No options were exercised by trustees under the Trustees Plan during 1995.
On June 1, 1995, Messrs. Palmer, Bailey, Judell, Anagnos and Osnos were each
granted options to purchase 1,500 EastGroup Shares at an exercise price of
$19.00 per EastGroup Share.
CERTAIN TRANSACTIONS
Expense-Sharing Arrangements. Until December 31, 1994, EastGroup had an
expense-sharing agreement with Congress Street, Parkway, and Eastover
Corporation ("Eastover") pursuant to which the participants shared
administrative offices at the same location in Jackson, Mississippi and common
officers and other personnel, subject to the authority of the board of each
member company to elect or appoint and remove its officers in accordance with
its certificate of incorporation, declaration of trust or other charter
documents and applicable law. EB, Inc. ("EB") had a separate administrative
agreement with Congress Street which allowed EB to participate in the
expense-sharing arrangement on the same basis as the companies which were
parties to the expense-sharing agreement. LNH had a separate administration
agreement with Congress Street (and later EastGroup) which terminated effective
March 31, 1995. See "-- Administration Agreement." Under this arrangement, the
participants shared the cost of the common officers and other employees and of
shared facilities and activities. These common costs were initially paid by
Congress Street, which served as the administrator of the arrangement, and the
other participants paid Congress Street an annual fee (on a monthly basis) of
one-half of one percent of their assets which were publicly-traded securities,
and Congress Street was paid a fixed annual fee in equal monthly installments by
LNH. After these fees and any profits of Eastover Realty Corporation, a real
estate company that was a subsidiary of Congress Street, were subtracted from
total common costs, the remaining common costs were allocated on a monthly basis
among EastGroup, Parkway, Congress Street, Eastover and EB (collectively, the
"Expense-Sharing Participants") in proportion to their assets other than
publicly-traded securities, based on their balance sheets as contained in their
most recent SEC filings. Certain costs which the common officers believed to be
particularly attributable to each member company were not shared. These
non-allocable costs included but were not limited to directors' and trustees'
fees, legal, audit and stock transfer expenses, stationery and items of similar
nature. Since the allocation formula was not based upon actual costs incurred by
each member company, the allocation may have, from time to time, resulted in a
greater or lesser charge to each member company than would have resulted if
actual costs to each member company were allocated.
In connection with the business combinations involving the Expense-Sharing
Participants (i.e., Congress Street merged with a wholly-owned subsidiary of
Parkway on November 29, 1994, Eastover combined with EastGroup on December 22,
1994 and EB combined with Parkway on April 27, 1995), the above described
expense-sharing arrangements terminated on December 31, 1994, except that
EastGroup had the responsibility for managing LNH under the prior administration
agreement between LNH and Congress Street. See "-- Administration Agreement."
Since that date, Parkway and EastGroup each have their own respective officers
and employees, who do not serve as officers or employees of the other company,
except for Leland R. Speed, who continues to serve as the Chief Executive
Officer of both companies, and a small number of clerical and support staff
employees. The officers of EastGroup also continue to serve as officers of LNH;
in addition, the President of Parkway -- Steven G. Rogers -- continues to serve
as an officer of LNH. David H. Hoster II and N. Keith McKey, who formerly served
as officers of all the Expense-Sharing Participants, now serve as officers of
EastGroup and LNH and not Parkway. EastGroup, LNH and Parkway continue to share
the same leased office space at One Jackson Place in Jackson, Mississippi and
share the services of Mr. Speed and certain clerical and support staff employees
and expenses related thereto are shared among Parkway and EastGroup (except for
certain costs which can be attributed to either company based on its actual use
of the services involved). LNH's costs are paid as provided in the Management
Agreement (described below).
Administration Agreement. Effective April 22, 1992, LNH REIT Managers
entered into an administration agreement (the "Administration Agreement"), with
Congress Street. Under the Administration Agreement, Congress Street (and later
EastGroup) administered the day-to-day business of LNH in return for a $125,000
annual fee, payable by LNH's manager. In connection with the termination of the
expense-sharing arrangements described above, EastGroup assumed Congress
Street's duties under the Administration Agreement. The Administration Agreement
was terminated effective March 31, 1995.
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Cost Sharing Arrangement with Parkway. EastGroup and Parkway continue to
share the same office space at One Jackson Place in Jackson, Mississippi.
EastGroup and Parkway share the rent with respect to their shared office space
based upon the number of employees each has in such office space divided by the
total number of employees of both companies using the office space. In addition,
EastGroup and Parkway share the services of Mr. Speed and a limited number of
clerical and support staff employees and expenses related thereto are shared
equally between EastGroup and Parkway. Parkway and EastGroup also share the
expenses of certain office supplies and equipment, and EastGroup reimburses
Parkway for the services of certain employees of Parkway who perform services
for EastGroup on an as requested basis. During the year ended December 31, 1995,
EastGroup paid Parkway $387,000 under this cost-sharing arrangement.
Management Agreement with LNH. LNH has no salaried employees; its officers
are elected by the Board of Directors solely to facilitate the execution of
commitments and other obligations on behalf of LNH. Except for certain benefits
received pursuant to the Incentive Compensation Plan effective October 1, 1993,
none of the officers of LNH receives any remuneration from LNH in his or her
capacity as an officer of LNH. EGP Managers provides all executive and
administrative personnel, office space and general services required by LNH.
Management services for LNH are rendered by EGP Managers under a Management
Agreement. Until April 3, 1995, the manager, pursuant to the Management
Agreement, was LNH REIT Managers, a Mississippi general partnership in which
Walker Managers, L.P. ("Walker") and EGP Managers were equal partners. In
connection with EastGroup's purchase of 383,775 LNH Shares for $7.50 in cash per
LNH Share from affiliates of Walker, EGP Managers purchased Walker's one-half
interest in LNH REIT Managers, and EGP Managers replaced LNH REIT Managers as
manager under the Management Agreement. EGP Managers is entitled to receive a
basic annual fee (the "Basic Fee"), payable in monthly installments, equal to
the sum of 1.25% of the first $100,000,000 or portion thereof of LNH's Invested
Assets (as defined in the Management Agreement), 1.125% of the second
$100,000,000 or portion thereof, 1.00% of the third $100,000,000 or portion
thereof, 0.875% of the fourth $100,000,000 or portion thereof and 0.75% of the
portion (if any) of Invested Assets exceeding $400,000,000.
EGP Managers may also receive incentive compensation equal to the excess,
if any, of (x) the Average Annual Incentive Fee (as defined below) for the
period from May 26, 1981 (the date on which LNH received the net proceeds of the
public offering of LNH Shares), to the end of any fiscal year, multiplied by the
number of 12-month fiscal years and fractions thereof in such period, over (y)
the aggregate amount of incentive fee, if any, earned by the manager in prior
years. The "Average Annual Incentive Fee" at the end of any fiscal year will be
equal to the sum of:
(i) 10% of the amount by which the Average Annual Net Profit (as
defined in the Management Agreement) from May 26, 1981, to such time
exceeds 12% of the Average Net Worth (as defined in the Management
Agreement) for such period; and
(ii) 5% of the amount by which the Average Annual Net Profit from May
26, 1981, to such time exceeds 17% of the Average Net Worth for such
period; and
(iii) 5% of the amount by which the Average Annual Net Profit from May
26, 1981, to such time exceeds 22% of the Average Net Worth for such
period.
During the year ended December 31, 1994, LNH paid Management Fees of
$338,000. EGP Managers did not receive incentive compensation in the fiscal year
ended December 31, 1994, and is not expected to receive incentive compensation
in the current fiscal year. Effective July 1, 1994, EGP Managers agreed to amend
the Management Agreement to provide that the Management Fee paid by LNH will not
exceed $29,167 per month. The Management Agreement will be terminated upon the
effective date of the EastGroup-LNH Merger.
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PROPOSAL 3 -- AMENDMENT TO
EASTGROUP PROPERTIES 1994 MANAGEMENT INCENTIVE PLAN
(FOR EASTGROUP SHAREHOLDERS ONLY)
At the EastGroup Meeting, the shareholders of EastGroup will be asked to
vote on a proposal to approve and adopt an amendment (the "Plan Amendment") to
EastGroup's 1994 Incentive Plan. The affirmative vote of a majority of the
EastGroup Shares present at the EastGroup Meeting is required to approve and
adopt the Plan Amendment. The Board of Trustees of EastGroup recommends a vote
FOR approval of the Plan Amendment. Unless otherwise instructed, proxies will be
voted FOR approval of the Plan Amendment. The 1994 Incentive Plan, marked to
show the changes made by the Plan Amendment, is attached hereto as Appendix D.
The 1994 Incentive Plan presently provides that the number of EastGroup
Shares available under the 1994 Incentive Plan shall be 200,000, but that in the
event EastGroup engages in a public offering of or repurchases EastGroup Shares,
then the number of EastGroup Shares available under the 1994 Incentive Plan
shall increase or decrease, as the case may be, by five percent of the number of
EastGroup Shares sold or purchased. Pursuant to the Plan Amendment, the number
of EastGroup Shares available under the 1994 Incentive Plan will also increase
by five percent of (i) the number of EastGroup Shares issued in any merger or
other business combination transaction or (ii) issued in any private placement
of EastGroup Shares. Under the Plan Amendment, the consummation of the Merger
and the EastGroup-LNH Merger will result in an increase in the number of
EastGroup Shares available under the 1994 Incentive Plan. The EastGroup Board
believes that in light of the Merger and the proposed EastGroup LNH Merger, the
Plan Amendment is appropriate and in the best interest of EastGroup.
SUMMARY OF THE 1994 INCENTIVE PLAN
This summary of the 1994 Incentive Plan, as amended, is qualified in its
entirety by the text of the 1994 Incentive Plan itself. Shareholders are urged
to read the 1994 Incentive Plan.
The 1994 Incentive Plan provides for the issuance of an aggregate of
200,000 EastGroup Shares to trustees, key employees or officers of EastGroup and
its subsidiaries upon the exercise of options and upon incentive grants pursuant
to the 1994 Incentive Plan. If the Plan Amendment is approved, the number of
EastGroup Shares available under the 1994 Incentive Plan will increase as
described above. The 1994 Incentive Plan will be administered by a committee of
two or more trustees (the "Plan Committee"), none of whom shall be eligible (or
have been eligible at any time within one year prior to his appointment to the
Plan Committee) to participate in the 1994 Incentive Plan. The Plan Committee
shall have the sole authority to select participants from among the eligible
employees or officers, to determine the number of EastGroup Shares which may be
issued under each option, and to determine the terms, conditions and periods of
exercisability of each option. The options shall be evidenced by option
agreements. The option exercise price shall not be less than the fair market
value of an EastGroup Share on the date an option is granted. There are
additional provisions of the 1994 Incentive Plan which apply to incentive stock
options. The aggregate fair market value (determined as of the date an incentive
stock option is granted) of the EastGroup Shares with respect to which incentive
stock options are exercisable by any employee during any calendar year shall not
exceed $100,000. Finally, if an optionee disposes of EastGroup Shares acquired
pursuant to an incentive stock option, he must notify EastGroup of the
disposition and provide it with information regarding the disposition.
EastGroup Shares issuable upon the exercise of an option under the 1994
Incentive Plan have not been registered under the Securities Act, pursuant to an
exemption from such registration. Because such EastGroup Shares will be
"restricted securities," an employee will be required, upon exercise of an
option, to warrant and represent that he is acquiring such EastGroup Shares for
investment and not for sale or distribution and he may be required to hold the
EastGroup Shares for a period of time prior to selling them. Upon the sale or
transfer of such EastGroup Shares counsel for EastGroup must be satisfied that
the sale or transfer is in compliance with the Securities Act and all other
applicable laws, rules and regulations.
If an optionee's employment is terminated by reason of permanent disability
or death, the right of the optionee to exercise his option shall be deemed to
have been accelerated, and the optionee shall be regarded as
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having been entitled to exercise his option on the day immediately preceding his
retirement, permanent disability or death, as the case may be, as to the full
amount of EastGroup Shares subject to the option minus any EastGroup Shares with
respect to which the option had previously been exercised. If the optionee's
employment is terminated by reason of retirement, the Plan Committee may
accelerate the right of the optionee to exercise the option. The optionee shall
have a period of twelve months immediately after his retirement or permanent
disability to exercise his option. If the optionee should die while in the
employ of EastGroup or a subsidiary or within the period of twelve months
immediately after his retirement or permanent disability, the optionee's legal
representatives shall have the right for an additional period of one year from
the date of death to exercise the option set forth above. If an optionee's
employment is terminated for any reason other than retirement, death or
permanent disability, the optionee may exercise the option within three months
of the date of termination of his employment, but only to the extent the option
was exercisable on the date of termination.
Upon a "Change in Control" of EastGroup (as defined in the 1994 Incentive
Plan), the date upon which options may be exercised shall be accelerated so that
all options may be exercised in full on or before the date of the Change in
Control. In the event of the effectuation by EastGroup of a stock dividend,
stock split, consolidation or other similar corporate change, the EastGroup
Shares subject to outstanding options will be increased or decreased
accordingly.
The 1994 Incentive Plan also provides that incentive awards may be made to
officers of EastGroup designated by the Plan Committee. Each year, the Plan
Committee (or those trustees on the Plan Committee who are disinterested persons
under Rule 16b-3 of the Exchange Act) shall establish EastGroup's goal for FFO
per share for the purposes of the 1994 Incentive Plan for the year and the
minimum FFO that EastGroup must exceed as a condition for the payment of any
incentive awards for the years under the 1994 Incentive Plan.
The Plan Committee shall establish incentive award payout objectives for
each participant for each year of participation in the annual incentive award
portion of this 1994 Incentive Plan. The Plan Committee shall compose a set of
incentive awards guidelines for each year. The guidelines shall set out
participants' incentive award payout objectives for the year in relation to
EastGroup's FFO goal for the year.
The Plan Committee then shall determine the actual amount, if any, of a
participant's incentive award for the year, subject to the approval of those
members of the Board of Trustees who are disinterested trustees. An annual
incentive award under the 1994 Incentive Plan shall be payable as follows:
EastGroup shall pay two-thirds of the amount of the award to the participant in
cash and shall issue to the participant a number of EastGroup Shares having an
aggregate value (as determined below) equal to one-third of the amount of the
award, except that the value of any fractional EastGroup Share shall be paid in
cash. The 1994 Incentive Plan contains a method for determining the value of the
EastGroup Shares issued as a portion of incentive awards.
The incentive award program began in 1995. The Board of Trustees may
terminate the 1994 Incentive Plan at any time with respect to any EastGroup
Shares for which grants have not theretofore been made. However, no amendment to
the 1994 Incentive Plan which would (i) materially increase the benefits
accruing to participants under the 1994 Incentive Plan, (ii) increase the number
of EastGroup Shares which may be issued under the 1994 Incentive Plan (other
than increases by reason of a stock dividend or stock split), (iii) change the
class of persons eligible to receive options under the 1994 Incentive Plan, or
(iv) extend the term of the 1994 Incentive Plan, can be made without the
approval of the shareholders of EastGroup.
The 1994 Incentive Plan will terminate upon and no further options or
grants shall be granted after the expiration of ten years after the date of its
adoption by the Board of Trustees.
The Plan Committee has not yet determined the amount of any options to be
issued to executive officers of EastGroup, other than those options already
outstanding and described under "Proposal 2 -- Election of Trustees (For
EastGroup Shareholders Only) -- Executive Compensation."
The Board of Trustees recommends a vote FOR ratification of the amendment
to the 1994 Incentive Plan.
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TAX INFORMATION
An employee granted a non-qualified stock option will not recognize income
for federal income tax purposes upon the grant of the option but will, upon the
exercise of the option, recognize ordinary income equal to the amount by which
the fair market value of the stock acquired through the exercise of the option
exceeds the exercise price of the option.
An employee granted an incentive stock option under Section 422 of the Code
will not recognize income for federal income tax purposes upon the grant or
exercise of the option. However, the amount by which the fair market value of
the EastGroup Shares acquired through the exercise of an incentive stock option
exceeds the exercise price of the option is an item of tax preference for the
purpose of computing alternative minimum taxable income for the year of
exercise.
When an employee exercises a non-qualified option, EastGroup is entitled to
a deduction for federal income tax purposes equal to the amount of income
recognized by the employee upon the exercise of the option.
EastGroup is not entitled to a deduction for federal income tax purposes in
connection with the grant or exercise of an incentive stock option. However, if
within one year of any employee's acquisition of EastGroup Shares through the
exercise of an incentive stock option the employee disposes of such EastGroup
Shares, EastGroup will be entitled to a deduction in the year of the disposition
equal to the amount by which the fair market value of such stock on the date of
exercise (or, if lower, the value on the date of disposition) exceeds the
exercise price of the option.
PROPOSAL 4 -- AMENDMENT TO THE EASTGROUP DECLARATION
TO INCREASE THE NUMBER OF AUTHORIZED EASTGROUP SHARES
(FOR EASTGROUP SHAREHOLDERS ONLY)
At the EastGroup Meeting, shareholders of EastGroup will be asked to vote
on a proposal to approve and adopt an amendment to the EastGroup Declaration
(the "Declaration Amendment"), to increase the number of authorized EastGroup
Shares. The affirmative vote of two-thirds of EastGroup Shares outstanding is
required to approve and adopt the Declaration Amendment. The EastGroup Board of
Trustees recommends a vote FOR approval of the Declaration Amendment. Unless
otherwise instructed, proxies will be voted FOR approval of the Declaration
Amendment. The proposed Declaration Amendment is attached hereto as Appendix E.
The EastGroup Declaration provides that EastGroup may issue up to
10,000,000 EastGroup Shares. As of March 15, 1996, EastGroup has issued or
reserved for issuance 7,297,000 EastGroup Shares including up to 631,000
EastGroup Shares that may be issued in the proposed merger with LNH and up to
2,217,000 EastGroup Shares that may be issued in the Merger. If the Declaration
Amendment is adopted, 20,000,000 EastGroup Shares will be authorized and
available for issuance.
The Board of Trustees believes that it is imperative that EastGroup
increase the number of authorized EastGroup Shares so that there will be
EastGroup Shares available to raise additional capital through issuances of
EastGroup Shares, to permit stock dividends or stock splits or to acquire
property through the issuance of EastGroup Shares. The Board of Trustees intends
to file the Declaration Amendment soon after the EastGroup Meeting if such
amendment is approved by the shareholders. EastGroup has filed a Registration
Statement under the Securities Act pursuant to which it proposes to issue
securities to the public, which securities may include additional EastGroup
Shares if the Declaration Amendment is approved by the shareholders.
The terms and rights of the additional EastGroup Shares to be authorized if
the Declaration Amendment is approved will be identical to those of presently
outstanding EastGroup Shares and to those of presently authorized but unissued
EastGroup Shares. The increase in authorized capital will not have any immediate
effect on the rights of existing shareholders. To the extent that the additional
authorized EastGroup Shares are issued in the future, the existing shareholders'
percentage equity ownership will decrease and, depending on
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the price at which EastGroup Shares are issued, could have the effect of
diluting the earnings per share and book value per share of outstanding
EastGroup Shares. The holders of EastGroup Shares have no preemptive rights. The
increase in the authorized capital and the subsequent issuance of such shares
could have the effect of delaying or preventing a change in control of EastGroup
without further action by the shareholders by diluting the stock ownership or
voting rights of a person seeking to obtain control of EastGroup.
EXPERTS
The consolidated financial statements of EastGroup as of December 31, 1995
and 1994, and for each of the years in the three year period ended December 31,
1995, have been incorporated by reference in the Joint Proxy
Statement/Prospectus and the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein in, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Copley as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995 in
this Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports and incorporated herein by reference.
The consolidated financial statements of LNH as of December 31, 1995 and
1994, and for each of the two years in the period ended December 31, 1995
appearing in this Joint Proxy Statement/Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as indicated in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
LEGAL OPINIONS
The validity of the EastGroup Shares being offered hereby has been passed
upon for EastGroup by Jaeckle, Fleischmann & Mugel. Jaeckle, Fleischmann & Mugel
has also passed upon the significant federal income tax consequences of the
Merger to the holders of EastGroup Shares. Hale and Dorr has passed upon the
significant federal income tax consequences of the Merger to the holders of
Copley Shares.
REPORTS TO SHAREHOLDERS
EastGroup will continue to provide shareholders with annual reports
containing financial statements reported upon by independent auditors, and also
unaudited quarterly statements of operations.
OTHER MATTERS
Copley. The management of the Copley does not know of any other matters to
come before the Copley Meeting. However, if any other matters come before the
Copley Meeting, it is the intention of the persons designated as proxies to vote
in accordance with their judgment on such matters.
A portion of the expense of preparing, printing and mailing the form of
proxy and the material used in the solicitation thereof initially will be borne
by Copley, but ultimately will be borne, directly or indirectly, by EastGroup if
the Merger is consummated. If the Merger is not consummated, Copley would bear
all expenses it incurred relating to this Joint Proxy Statement/Prospectus.
In addition to solicitation by mail, members of the Board of Directors,
officers and regular employees of Copley may solicit the return of proxies by
telephone, telegram and personal interview.
Copley may require brokers, custodians, nominees and other record holders
to forward copies of this Joint Proxy Statement/Prospectus to persons for whom
they hold Copley Shares and to seek authority for the execution of proxies; in
such cases, Copley will reimburse such holders for their charges and expenses.
Copley has retained Beacon Hill Partners, Inc. ("Beacon Hill") to assist with
the solicitation of proxies and will pay
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Beacon Hill a fee of $2,500 (subject to increase for additional services such as
telephone solicitation) plus reimbursement for out-of-pocket expenses for its
services.
EastGroup. The management of the EastGroup does not know of any other
matters to come before the EastGroup Meeting. However, if any other matters come
before the EastGroup Meeting, it is the intention of the persons designated as
proxies to vote in accordance with their judgment on such matters.
A portion of the expense of preparing, printing and mailing the form of
proxy and the material used in the solicitation thereof initially will be borne
by EastGroup, but ultimately will be borne, directly or indirectly, by EastGroup
if the Merger is consummated. If the Merger is not consummated, EastGroup would
bear all expenses it incurred relating to this Joint Proxy Statement/Prospectus.
In addition to solicitation by mail, members of the Board of Trustees,
officers and regular employees of EastGroup may solicit the return of proxies by
telephone, telegram and personal interview.
EastGroup may require brokers, custodians, nominees and other record
holders to forward copies of this Joint Proxy Statement/Prospectus to persons
for whom they hold EastGroup Shares and to seek authority for the execution of
proxies; in such cases, EastGroup will reimburse such holders for their charges
and expenses. EastGroup has retained Beacon Hill to assist with the solicitation
of proxies and will pay Beacon Hill a fee of $4,500 (subject to increase for
additional services such as telephone solicitation) plus reimbursement for out-
of-pocket expenses for its services.
SHAREHOLDER PROPOSALS
Any EastGroup shareholder who wishes to submit a proposal for presentation
at EastGroup's 1997 Annual Meeting of Shareholders must submit such proposal to
EastGroup at its office at 300 One Jackson Place, 188 East Capitol Street,
Jackson, Mississippi 39201, Attention: Secretary no later than December ,
1996, in order to be considered for inclusion, if appropriate, in EastGroup's
proxy statement and form of proxy relating to its 1997 Annual Meeting of
Shareholders.
Any Copley stockholder who wishes to submit a proposal for presentation at
Copley's 1996 Annual Meeting of Stockholders (which would be held only if the
Merger has not been consummated prior to the date the meeting is to be held)
must have submitted the proposal to Copley at its office at 399 Boylston Street,
13th Floor, Boston, Massachusetts 02116, Attention: Secretary. Such proposal
must have been received not later than December 19, 1995 in order to be
considered for inclusion, if appropriate, in Copley's proxy statement and form
of proxy relating to its 1996 Annual Meeting.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF EASTGROUP PROPERTIES
Pro Forma Consolidated Balance Sheet as of December 31, 1995 (unaudited).............. F-2
Notes to Pro Forma Consolidated Balance Sheet as of December 31, 1995 (unaudited)..... F-3
Pro Forma Consolidated Statement of Operations for the year ended December 31, 1995
(unaudited)......................................................................... F-5
Notes to Pro Forma Consolidated Statement of Operations (unaudited)................... F-6
CONSOLIDATED FINANCIAL STATEMENTS OF COPLEY PROPERTIES, INC.
Report of Independent Accountants..................................................... F-9
Consolidated Balance Sheets -- December 31, 1995 and 1994............................. F-10
Consolidated Statements of Operations and Cumulative Deficit -- Years ended December
31, 1995, 1994 and 1993............................................................. F-11
Consolidated Statements of Cash Flows -- Years ended December 31, 1995, 1994 and
1993................................................................................ F-12
Notes to Consolidated Financial Statements............................................ F-13
CONSOLIDATED FINANCIAL STATEMENTS OF LNH REIT, INC.
Report of Independent Auditors........................................................ F-25
Consolidated Balance Sheets -- December 31, 1995 and 1994............................. F-26
Consolidated Statements of Operations -- Years ended December 31, 1995 and 1994....... F-27
Consolidated Statements of Cash Flows -- Years ended December 31, 1995 and 1994....... F-28
Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1995 and
1994................................................................................ F-29
Notes to Consolidated Financial Statements............................................ F-30
</TABLE>
F-1
<PAGE> 127
<TABLE>
EASTGROUP PROPERTIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS OF DECEMBER 31, 1995
The following unaudited pro form a consolidated balance sheet sets forth the effect of the EastGroup Properties proposed
merger with LNH REIT, Inc. and with Copley Properties, Inc. as if the mergers had been consummated on December 31, 1995. The pro
forma consolidated balance sheet has been prepared by management of EastGroup based upon the historical financial statements of
EastGroup, LNH REIT and Copley. This pro forma consolidated balance sheet may not be indicative of the financial position had
the merger been in effect on the dates indicated or which may occur in the future. The pro forma consolidated balance sheet
should be read in conjunction with the other financial statements and the notes to the financial statements of EastGroup
incorporated by reference herein and Copley and LNH REIT enclosed herein.
<CAPTION>
EASTGROUP LNH COPLEY
DECEMBER 31, DECEMBER 31, MERGER PRO FORMA DECEMBER 31, MERGER
1995 1995 PRO FORMA CONSOLIDATED 1995 COPLEY PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS BEFORE COPLEY (HISTORICAL) EXCHANGES ADJUSTMENTS CONSOLIDATED
------------ ------------ ----------- ------------- ------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate
properties (net
of accumulated
depreciation).. $136,398 $10,611 $(2,761)(1) $144,248 $ 72,397 $ 22,918(4) $14,793(3) $254,356
Investments
in tenancies-
in-common...... -- -- -- -- 2,311 (2,311)(4) -- --
Investment
in joint venture -- 6,011 (1,469)(1) 4,542 -- -- -- 4,542
Mortgage loans
(net of
allowance for
losses)........ 6,008 6,860 (1,645)(1) 11,223 896 -- -- 12,119
Land and land
purchase-
leasebacks..... 1,327 -- -- 1,327 -- -- -- 1,327
Investment
securities..... 6,811 675 -- 7,486 -- -- (6,811)(3) 675
Equity method
investments.... 3,976 -- (3,976)(1) -- -- -- -- --
Cash and cash
equivalents.... 26 1,016 -- 1,042 1,116 92(4) -- 2,250
Short term
investments.... -- -- -- -- 4,600 -- (2,445)(5) 2,155
Other assets.... 3,409 502 (49)(2) 3,862 197 -- -- 4,059
-------- ------- -------- ------ -------- ------- ------- --------
$157,955 $25,675 $(9,900) $173,730 $81,517 $20,699 $ 5,537 $281,483
======== ======= ======== ======== ======== ======= ======= ========
LIABILITIES
Mortgage notes
payable........ $67,203 $ -- $ -- $67,203 $39,333 $20,699(4) $ -- $127,235
Notes
payable to banks 4,359 -- -- 4,359 -- -- -- 4,359
Accounts
payable, accrued
expenses and other
liabilities.... 2,584 750 (49)(2) 3,285 3,118 -- (2,574)(5) 3,829
Minority
interest....... 909 1,476 -- 2,385 -- -- -- 2,385
-------- ------- -------- -------- -------- ------- -------- --------
75,055 2,226 (49) 77,232 42,451 20,699 -- 137,808
-------- ------- -------- -------- -------- ------ -------- --------
SHAREHOLDERS'
EQUITY
Shares of
beneficial
interest....... 4,232 1,100 (1,100)(1) 4,863 4,008 -- (4,008)(3) 7,080
631(1) 2,217 (3)
Additional
paid-in-capital 68,344 24,839 (24,839)(1) 81,361 69,625 -- (69,625)(3) 126,809
13,017(1) 45,448 (3)
Undistributed
earnings (deficit) 9,657 (2,996) 2,996(1) 9,657 (29,671) -- 29,671(3) 9,786
129(5)
Unrealized
gain (loss) on
securities..... 667 506 (506)(1) 617 -- -- (617)(3) --
(50)(1)
Treasury stock -- -- -- -- (4,896) -- 4,896(3) --
-------- ------- -------- -------- -------- ------- -------- --------
82,900 23,449 (9,851) 96,498 39,066 -- 8,111 143,675
-------- ------- -------- -------- -------- ------- -------- --------
$157,955 $ 25,675 $(9,900) $173,730 $81,517 $20,699 $5,537 $281,483
======== ======= ======== ======== ======== ======= ======== ========
Book
value per share $19.59 $10.66 $19.84 $10.90 $ 20.29
======== ======= ======== ======= =======
Shares
outstanding
(In thousands) 4,232 2,200 4,863 3,584 7,080
======== ======= ======== ======= =======
</TABLE>
F-2
<PAGE> 128
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS OF DECEMBER 31, 1995
1. EastGroup issues 631,126 shares to all LNH REIT shareholders (except for
EastGroup) in exchange for all LNH REIT shares outstanding. The 515,200 LNH REIT
shares owned by EastGroup (representing 23.42% of the total shares outstanding)
are retired. The merger with LNH REIT is accounted for under the purchase method
of accounting.
<TABLE>
<S> <C>
LNH REIT shares outstanding................................... 2,200,000
Less LNH REIT shares owned by EastGroup....................... (515,200)
-----------
1,684,800
Exchange ratio ($8.10/$21.625) Closing price of EastGroup on
December 6, 1995, date merger was announced................. .3746
-----------
New EastGroup shares issued................................... 631,126
Market value per EastGroup share.............................. $ 21.625
-----------
$13,648,000
EastGroup's investment in LNH at December 31, 1995............ 3,976,000
Eliminate unrealized gain -- investment in LNH................ (50,000)
-----------
EastGroup's cost of LNH REIT's net assets..................... $17,574,000
===========
</TABLE>
The difference between LNH's book value and EastGroup's cost is allocated
to LNH's noncurrent assets (real estate, joint venture and mortgage loans) based
upon relative fair values.
<TABLE>
<S> <C>
Cost.......................................................... $17,574,000
Book value.................................................... 23,449,000
------------
Difference.................................................... $(5,875,000)
============
</TABLE>
Difference is allocated as follows:
<TABLE>
<S> <C>
Real estate................................................... $(2,761,000)
Joint venture................................................. (1,469,000)
Mortgage loans................................................ (1,645,000)
-----------
$(5,875,000)
==========
</TABLE>
2. Eliminate LNH's management fee payable to EastGroup against EastGroup's
management fee receivable.
3. EastGroup issues 2,216,962 shares to all Copley stockholders (except for
EastGroup) in exchange for all Copley shares outstanding. The 529,000 Copley
shares owned by EastGroup (representing 14.76% of the total shares outstanding)
are retired. The merger with Copley is accounted for under the purchase method
of accounting.
F-3
<PAGE> 129
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET -- (CONTINUED)
<TABLE>
<S> <C>
Copley shares outstanding, net of treasury stock................ 3,584,350
Less Copley shares owned by EastGroup........................... (529,000)
-----------
3,055,350
Exchange ratio ($15.60/$21.50) closing price of EastGroup on
February 13, 1996, date merger was announced.................. .7256
-----------
New EastGroup shares issued..................................... 2,216,962
Market value per EastGroup share................................ $ 21.50
-----------
$47,665,000
EastGroup's investment in Copley at December 31, 1995........... 6,811,000
Eliminate unrealized gain -- investment in Copley............... (617,000)
-----------
EastGroup's cost of Copley's net assets......................... $53,859,000
===========
</TABLE>
The difference between Copley's book value and EastGroup's cost is
allocated to Copley's noncurrent assets (real estate) based upon relative fair
values.
<TABLE>
<S> <C>
Cost............................................................ $53,859,000
Book value...................................................... 39,066,000
-----------
Difference...................................................... $14,793,000
===========
</TABLE>
4. Copley's exchanges:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------------------------
INVESTMENTS IN
REAL ESTATE TENANCIES-IN- CASH AND CASH MORTGAGE
PROPERTIES, NET COMMON EQUIVALENTS NOTES PAYABLE
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Columbia Place(A).......................... $11,684 (1,650) 230 10,264
Metro Business Park & East Dominguez(A).... 11,234 (661) (138) 10,435
------- ------- ----- ------
Total............................ $22,918 (2,311) 92 20,699
======= ======= ===== ======
</TABLE>
- ---------------
(A) In February 1996, Copley effected two exchange transactions. In the first
exchange transaction, Copley exchanged its tenancy-in-common interest in 270
Technology Park to obtain 100% ownership of Columbia Place, subject to a
mortgage note payable of $10,264,000. In addition, Copley received $230,000
of monetary consideration. In the second exchange transaction, Copley
exchanged its tenancy-in-common interest in West Side Business Park, Central
Distribution Center, Carson Industrial Center and the three El Presidio
buildings (comprising a portion of the Dominguez Properties) to obtain 100%
ownership of Metro Business Park and the remaining building in the Dominguez
Properties tenancy-in-common, subject to mortgage notes payable of
$10,435,000. In addition, Copley was required to make a $138,000 cash
payment. These transactions were accounted for at the book value of the
assets exchanged.
For purposes of determining pro forma adjustments, it was assumed that the
exchange transaction occurred at December 31, 1995. As a result, all investments
in tenancies-in-common have been eliminated from the pro forma balance sheet and
the real estate properties which are eventually 100% owned by Copley have been
reflected as such, with associated debt separately stated.
5. Upon the Merger, Copley Advisors has agreed (i) to the termination of
the Advisory Agreement in consideration of the payment of 95% of the amount of
the unpaid incentive advisory fees and (ii) to relinquish its rights to and
interest in the Class A Share for one dollar ($1.00). These transactions have
been reflected on the pro forma balance sheet. The impact of the forgiveness of
the five percent of the unpaid incentive management fees is also reflected
therein. Funds for the payment of the accrued advisory fees is assumed to be
provided by the liquidation of short-term investments.
F-4
<PAGE> 130
<TABLE>
EASTGROUP PROPERTIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
The following unaudited pro forma consolidated statement of operations for the year ended December 31, 1995 sets forth
the effect of EastGroup's proposed merger with LNH REIT and Copley as if these transactions had been consummated on January 1,
1995. The pro forma consolidated statement of operations has been prepared by management of EastGroup based upon historical
statements of operations of EastGroup, LNH REIT and Copley. The pro forma statement of operations may not be indicative of the
results that actually would have occurred if the transactions had been in effect on the dates indicated or which may be obtained
in the future. The pro forma statement of operations should be read in conjunction with their notes and the other financial
statements and notes to the financial statements of EastGroup incorporated by reference herein and Copley and LNH REIT enclosed
herein.
<CAPTION>
EASTGROUP LNH COPLEY COPLEY'S
DECEMBER 31, DECEMBER 31, MERGER PRO FORMA DECEMBER 31, ACQUISITIONS/ MERGER
1995 1995 PRO FORMA CONSOLIDATED 1995 DISPOSITIONS/ PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS BEFORE COPLEY (HISTORICAL) EXCHANGES ADJUSTMENTS CONSOLIDATED
------------ ------------ ----------- ------------- ------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Income from
real estate
operations... $28,386 $1,451 $ -- $29,837 $12,679 $ 2,566 (9) $ -- $45,082
Share of
real estate
investment
operations... -- -- -- -- 748 (748)(9) -- --
Land rents.... 217 -- -- 217 -- -- -- 217
Equity in
earnings of
real estate
investment
trust........ 203 -- (203)(2) -- -- -- -- --
Interest:
Mortgage loans 1,036 889 -- 1,925 39 -- -- 1,964
Other........ -- 52 -- 52 -- -- -- 52
Other........ 422 87 (146)(3) 363 -- -- (254)(10) 109
-------- ------- -------- -------- -------- ------- -------- --------
30,264 2,479 (349) 32,394 13,466 1,818 (254) 47,424
-------- ------- -------- -------- -------- ------- -------- --------
EXPENSES
Management
fees......... -- 294 (294)(4) -- 452 -- -- 452
Operating
expenses
from real
estate
operations.. 11,575 521 -- 12,096 3,030 51(9) 15,177
Interest
expense...... 6,287 -- 67(5) 6,354 4,533 1,204(9) 40(11) 12,131
Depreciation
and
amortization 5,613 369 -- 5,982 3,736 488(9) 240(12) 10,446
Minority
interest
in joint
ventures.... 220 98 -- 318 119 -- -- 437
Provision
for losses.. -- 189 -- 189 -- -- -- 189
General and
administrative
expenses.... 2,180 499 125(6) 2,804 1,270 -- (899)(13) 3,175
Write-off
of deferred
financing
costs... -- -- -- -- 501 -- (501)(14) --
-------- ------- -------- -------- -------- ------- -------- --------
25,875 1,970 (102) 27,743 13,641 1,743 (1,120) 42,007
-------- ------- -------- -------- -------- ------- -------- --------
Income before
gain on
investments. 4,389 509 (247) 4,651 (175) 75 866 5,417
-------- ------- -------- -------- -------- ------- -------- --------
GAIN ON
INVESTMENTS
Real estate
and mortgage
loans....... 3,322 535 (3,857)(1) -- 2,564 (2,564)(9) -- --
-------- ------- -------- -------- -------- ------- -------- --------
NET INCOME.... $ 7,711 $ 1,044 $(4,104) $ 4,651 $ 2,389 $(2,489) $ 866 $ 5,417
======== ======= ======== ======== ======== ======= ======== ========
Net income
per share... $ 1.82 $ .47 $ .96 $ 0.67 $ .77
======== ======= ======== ======== ========
WEIGHTED
AVERAGE SHARES
OUTSTANDING(8) 4,226 2,200 4,857 3,584 7,074
======== ======= ======== ======== ========
</TABLE>
F-5
<PAGE> 131
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) EastGroup and LNH dispositions have been accounted for as follows:
The operating revenues and expenses associated with EastGroup's
acquisitions and dispositions in 1995 are immaterial. Gain on dispositions
of $3,322,000 in 1995 has been removed in determining pro forma net income.
The operating revenues and expenses associated with the LNH
acquisitions and dispositions in 1995 are immaterial. Gain on dispositions
of $535,000 in 1995 has been removed in determining pro forma net income.
(2) Eliminate equity in earnings of LNH REIT, Inc.
(3) Eliminate equity in earnings of EastGroup Managers, Inc.
(4) Eliminate LNH management fee expense to LNH REIT Managers.
(5) Increase interest expense for borrowings to purchase LNH Shares from
the Walker Interests. The borrowings to purchase these shares was $3,070,000 at
an average rate of 8.5% for one quarter in 1995.
(6) Eliminate management fee income received from LNH REIT Managers.
(7) A $1.00 change in the per share price of EastGroup will result in a
corresponding change ( increase or decrease) in the number of shares issued to
LNH shareholders and pro forma net income per share as follows:
<TABLE>
<CAPTION>
CHANGE IN EASTGROUP
MARKET PRICE PER SHARE
-----------------------------------
$1.00 INCREASE $1.00 DECREASE
---------------- ----------------
<S> <C> <C>
Shares issued.......................... 27,968 decrease 30,495 increase
Pro forma net income
before Copley..................... No effect $.01 decrease
Pro forma book value
12-31-95 before Copley............... $.11 increase $.12 decrease
</TABLE>
(8) Weighted average EastGroup Shares outstanding were computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
(IN THOUSANDS)
<S> <C>
Historical weighted average EastGroup Shares
outstanding........................................... 4,226
EastGroup Shares issued in merger with LNH REIT......... 631
-----
Pro forma weighted average EastGroup Shares outstanding
before Copley......................................... 4,857
EastGroup Shares issued in merger with Copley........... 2,217
-----
Pro Forma weighted average EastGroup Shares
outstanding........................................... 7,074
=====
</TABLE>
F-6
<PAGE> 132
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(9) Copley's acquisitions/dispositions/exchanges:
<TABLE>
<CAPTION>
SALE, PURCHASE INCOME SHARE OF
OR EXCHANGE FROM REAL R.E. R.E.
--------------------------- ESTATE OPERATING DEPRECIATION INTEREST INVESTMENT GAIN (LOSS) ON
PROPERTY DESCRIPTION DATE OPERATIONS EXPENSE EXPENSE EXPENSE OPERATIONS INVESTMENTS TOTAL
- ----------- ----------- --------- --------- --------- ------------ ------- ---------- -------------- -------
AMOUNTS (000'S)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Peachtree
Corners
Dist
Center.... Sale Nov. 1995 $(1,134) $ 312 $ 396 $ 198 $ -- $ (1,806) $(2,034)
University
Business
Center.... (A) (64) -- -- 57 -- -- (7)
Park North
Business
Center.... Sale June 1995 (806) 229 411 251 -- (758) (673)
Kingsview
Industrial
Center.... Purchase July 1995 231 -- (45) -- -- -- 186
Columbia
Place..... Exchange(B) Feb. 1996 1,838 (32) (237) (921 ) (599) -- 49
Metro
Business
Park...... Exchange(B) Feb. 1996 1,391 (366) (658) (500 ) 47 -- (86)
Dominiguez
Properties... Exchange(B) Feb. 1996 1,110 (194) (355) (474 ) (155) -- (68)
270
Technology
Park...... Exchange(B) Feb. 1996 -- -- -- -- (111) -- (111)
West Side
Business
Park...... Exchange(B) Feb. 1996 -- -- -- -- 106 -- 106
Central
Distribution
Center.... Exchange(B) Feb. 1996 -- -- -- -- (3) -- (3)
Carson
Industrial
Center.... Exchange(B) Feb. 1996 -- -- -- -- (33) -- (33)
Line of
Credit.... (A) -- -- -- -- 185 -- -- 185
------- ----- ----- ----- ----- ------- -------
Total... $ 2,566 $ (51) $ (488) $(1,204) $ (748) $ (2,564) $(2,489)
======= ===== ===== ===== ===== ======= =======
</TABLE>
- ---------------
(A) For purposes of determining pro forma adjustments, it was assumed that the
principal due under certain debt agreements was repaid with available cash
and net proceeds available from dispositions which were assumed to occur on
January 1, 1995. Principal on notes payable at University Business Center
was assumed to be repaid on January 1, 1995. As the $3.5 million pay down on
the University Business Center note actually occurred in February 1995, the
pro forma adjustment reduces the interest expense by the interest accrued
for that portion of the note ($57,000 in 1995). As discussed above, on a pro
forma basis, Copley had sufficient cash available throughout the pro forma
period to mitigate any need to draw on the line of credit. In addition, the
line of credit balance was substantially repaid from the proceeds received
as a result of the sale of the Park North Business Center. Therefore, the
pro forma adjustments eliminate the effect of interest charges incurred
related to amounts drawn under the line of credit during the pro forma
period.
(B) As discussed in footnote 4(A) to the pro forma balance sheet, in February
1996 Copley effected two exchange transactions swapping tenancy-in-common
interests to gain 100% ownership of certain wholly owned properties. For
purposes of the pro forma statement of operations, share of real estate
investment operations for all investments involved in the exchange has been
eliminated and the separate components of income from operations for the
100% owned real estate properties have been reflected for the pro forma
periods.
(10) Eliminate dividend income from Copley's shares.
(11) Increase interest expense for borrowings to purchase Copley shares.
The borrowings to purchase these shares were $1,992,000 for six months and
$4,201,000 for three months of 1995 at an average rate 8.42%.
(12) Depreciation on step up in basis from allocation of the purchase price
over an estimated life of forty years.
(13) Eliminate professional expenses associated with the assessment of the
strategic alternatives available to Copley in order to maximize shareholder
value, including elimination of fees and expenses payable to Morgan Stanley as
financial advisor. This effort resulted in the solicitation from EastGroup to
enter into the pending merger transaction.
F-7
<PAGE> 133
EASTGROUP PROPERTIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(14) In 1994, Copley attempted to raise additional equity through a private
placement offering. Although the offering was unsuccessful in raising additional
equity from private investors, it became the first in a series of steps
undertaken by Copley to maximize stockholder value which resulted in the Merger.
In 1995, Copley wrote-off the costs incurred in conjunction with the private
placement offering. For pro forma purposes, the charge related to the write-off
of certain costs incurred in connection with the unsuccessful private placement
has been eliminated.
(15) A $1.00 change in the per share price of EastGroup (subject to a
collar of $20.25 to $23.00) will result in a corresponding change (increase or
decrease) in the number of shares issued to Copley stockholders and pro forma
net income per share as follows:
<TABLE>
<CAPTION>
CHANGE IN EASTGROUP
MARKET PRICE PER SHARE
-------------------------------------
$1.00 INCREASE $1.00 DECREASE
---------------- -----------------
<S> <C> <C>
Shares issued........................ 98,688 decrease 108,159 increase
Pro forma net income................. $ .01 increase $ .02 decrease
Pro forma book value 12-31-95........ .29 increase .30 decrease
</TABLE>
F-8
<PAGE> 134
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Copley Properties, Inc.:
We have audited the accompanying consolidated balance sheets of Copley
Properties, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related statements of operations and cumulative deficit
and cash flows for each of the three years in the period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Copley Properties,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 15, 1996
F-9
<PAGE> 135
COPLEY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Real estate investments (Notes 3 and 4):
Property, net................................................. $ 72,396,765 $ 88,640,489
Joint ventures................................................ -- 1,037,178
Investment in tenancies-in-common............................. 2,310,781 --
Loans to joint ventures....................................... -- 4,859,903
Ground lease.................................................. -- 1,187,000
Notes receivable.............................................. 895,963 1,000,966
Other......................................................... -- 681,356
------------ ------------
Total real estate investments......................... 75,603,509 97,406,892
Cash and cash equivalents....................................... 5,716,300 1,491,554
Deferred financing costs (Note 10).............................. -- 486,366
Other assets.................................................... 197,448 --
------------ ------------
Total assets.......................................... $ 81,517,257 $ 99,384,812
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Losses of joint ventures in excess of investment.............. $ -- $ 3,261,463
Accounts payable and other liabilities........................ 544,045 436,478
Accrued management advisory fees (Notes 9 and 14)............. 2,573,917 2,491,445
Line of credit borrowings..................................... -- 3,500,000
Mortgage notes payable (Notes 2 and 5)........................ 39,333,349 49,219,448
------------ ------------
Total liabilities..................................... 42,451,311 58,908,834
------------ ------------
Commitments (Note 3)
SHAREHOLDERS' EQUITY (Note 8):
Common stock, $1.00 par value; authorized 20,000,000 shares;
issued 4,007,500 shares.................................... 4,007,500 4,007,500
Additional paid-in capital.................................... 69,625,444 69,625,444
Treasury stock; 423,150 shares of common stock, at cost....... (4,895,726) (4,895,726)
Cumulative deficit............................................ (29,671,273) (28,261,241)
Class A common stock.......................................... 1 1
------------ ------------
Total shareholders' equity............................ 39,065,946 40,475,978
------------ ------------
Total liabilities and shareholders' equity............ $ 81,517,257 $ 99,384,812
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 136
COPLEY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND CUMULATIVE DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT ACTIVITY (Notes 2, 3 and 6):
Property operations, net....................... $ 1,445,701 $ 1,452,003 $ 1,128,334
Share of real estate investment earnings
Operations.................................. 748,067 415,742 191,333
Lease termination charges (Note 6).......... -- (1,770,471) --
Investment valuation allowance.............. -- -- (900,000)
------------ ------------ ------------
Total real estate operations........... 2,193,768 97,274 419,667
Gain on sales of Properties.................... 2,564,478 626,931 --
------------ ------------ ------------
Total real estate activity............. 4,758,246 724,205 419,667
Interest on short-term investments and cash
equivalents................................. 39,255 79,975 195,885
------------ ------------ ------------
Total investment activity.............. 4,797,501 804,180 615,552
------------ ------------ ------------
PORTFOLIO EXPENSES:
Management advisory fee........................ 451,863 714,761 601,535
General and administrative..................... 371,941 273,974 227,758
Professional fees (Note 13).................... 898,608 142,149 97,241
Interest expense............................... 184,562 210,241 --
Write-off of deferred financing costs (Note
10)......................................... 501,227 -- --
------------ ------------ ------------
2,408,201 1,341,125 926,534
------------ ------------ ------------
NET INCOME (LOSS)................................ 2,389,300 (536,945) (310,982)
Common stock dividends........................... (3,799,332) (3,369,229) (2,867,442)
CUMULATIVE DEFICIT:
Beginning of year.............................. (28,261,241) (24,355,067) (21,176,643)
------------ ------------ ------------
End of year.................................... $(29,671,273) $(28,261,241) $(24,355,067)
============ ============ ============
PER SHARE DATA:
Net Income (Loss).............................. $ .67 $ (.15) $ (.09)
============ ============ ============
Dividends...................................... $ 1.06 $ .94 $ .80
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE> 137
COPLEY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ 2,389,300 $ (536,945) $ (310,982)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Joint venture and tenancy-in-common
operations.................................. (673,799) (352,606) 16,832
Lease termination charges..................... -- 1,770,471 --
Cash distributions from joint ventures and
tenancies-in-common......................... 807,255 1,632,460 3,136,357
Property depreciation and amortization........ 3,735,914 3,999,341 810,305
Write-off of deferred financing costs......... 501,227 -- --
Gain on sales of Property..................... (2,564,478) (626,931) --
Investment valuation allowance................ -- -- 900,000
Increase in investment income receivable...... -- (30,365) (211,559)
Increase in deferred leasing commissions...... (404,330) (519,173) (33,153)
(Increase) decrease in property working
capital..................................... (374,311) (358,974) 133,263
Increase in accounts payable and accrued
management advisory fees.................... 109,795 318,478 228,202
Other, net.................................... (76,137) (72,683) --
----------- ---------- ----------
Net cash provided by operating
activities............................. 3,450,436 5,295,756 4,596,582
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in loans to joint ventures.............. (6,436) (191,037) (42,290)
Reduction of loans to joint ventures............. -- -- 551,895
Investment in joint ventures..................... (31,346) (143,494) (3,336,120)
Return of capital from joint ventures............ -- -- 25,119
Investment in Property........................... (4,553,172) (3,928,552) (2,291,721)
Proceeds from sale of Property................... 22,864,250 1,082,925 --
Decrease (increase) in short-term investments,
net........................................... -- 1,967,451 (979,408)
Increase in other assets......................... (280,570) -- --
Decrease in notes receivable..................... 109,426 2,444,619 --
----------- ---------- ----------
Net cash provided by (used in) investing
activities............................. 18,102,152 1,231,912 (6,072,525)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in line of credit borrowings,
net........................................... (3,500,000) 3,500,000 --
Proceeds from third-party mortgage note.......... 3,250,000 -- --
Principal payments on mortgage notes............. (13,136,099) (6,801,089) --
Dividends paid................................... (3,799,332) (3,369,229) (2,867,442)
Financing costs.................................. (142,411) (267,586) --
----------- ---------- ----------
Net cash used in financing activities.... (17,327,842) (6,937,904) (2,867,442)
----------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents................................... 4,224,746 (410,236) (4,343,385)
CASH AND CASH EQUIVALENTS:
Beginning of year............................. 1,491,554 1,901,790 6,245,175
----------- ---------- ----------
End of year................................... $ 5,716,300 $ 1,491,554 $ 1,901,790
----------- ---------- ----------
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest........ $ 4,827,630 $ 4,784,473 $ 358,177
=========== ========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES (NOTES 3 AND 12)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE> 138
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 ORGANIZATION AND BUSINESS
Copley Properties, Inc. (the Company), a Delaware corporation, was
incorporated in May 1985 and operates as a qualified real estate investment
trust under applicable provisions of the Internal Revenue Code of 1986, as
amended. The Company acquires, develops, operates and owns industrial real
estate. The Company currently owns and operates, either directly or through
tenancy-in-common arrangements, 15 properties totaling over 2.5 million square
feet of net rentable area. Copley Real Estate Advisors, Inc. (the Advisor)
provides investment management and administrative services to the Company. The
Advisor is an indirect wholly owned subsidiary of New England Investment
Companies, L.P. (NEIC), a publicly traded limited partnership. New England
Mutual Life Insurance Company is the principal unitholder of NEIC.
As described in Note 14, in February 1996, the Company entered into an
Agreement and Plan of Merger, under which the Company will be merged into
EastGroup Properties.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its consolidated joint ventures as of and subsequent to the date
on which the Company acquired a controlling ownership interest therein. The
Company has several tenancies-in-common, and previously had several other joint
ventures, which are presented in these financial statements using the equity
method, since control of the business is shared with the respective co-tenant.
All interentity balances and transactions have been eliminated.
Under circumstances arising from the inability of certain of its venture
partners to perform under joint venture agreements, the Company assumed control
over the respective businesses. Upon restructuring, these investments have been
classified as Properties in the consolidated balance sheets and any third-party
mortgage financing is separately presented, and operating revenues and expenses
are separately classified in property operations. Prior to restructuring, the
real estate assets and third-party mortgage loans of joint ventures are
considered in the investment balances and operating results are reported as
share of investment earnings. The restructuring transactions do not affect the
Company's net income (loss) or shareholders' equity.
Property
Property includes land and buildings wholly owned by the Company or owned
by consolidated joint ventures. These investments are referred to herein as
"Properties" and are stated at cost less accumulated depreciation. The Company's
cost of a Property previously owned by a joint venture equals the Company's
carrying value of the prior investment on the conversion date. It is the
Company's policy to estimate the remaining useful life of real estate assets at
the conversion date. This balance sheet caption also includes deferred leasing
costs, incidental working capital items related to Properties, and the minority
interest related to a consolidated joint venture.
Tenancies-in-Common, Joint Ventures and Secured Loans
The Company accounts for its investments in unconsolidated
tenancies-in-common using the equity method, under which the cost of the
investment is adjusted by the Company's share of the respective tenancy-
in-common's results of operations and reduced by certain cash distributions
received.
The Company has had investments in unconsolidated joint ventures which were
also accounted for using the equity method as described above. In addition, the
Company made loans to joint ventures in which the Company had an ownership
interest.
F-13
<PAGE> 139
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Share of real estate investment earnings (losses) in the accompanying
consolidated statements of operations includes tenancy-in-common and joint
venture earnings (losses) allocated to the Company. Allocations of
tenancy-in-common earnings (losses) are made in accordance with the ownership
interests of the respective co-tenants. Allocations of joint venture earnings
(losses) were made to the Company's joint venture partners in accordance with
the terms of the respective joint venture agreements as long as they had
economic equity in the project. A joint venture partner is determined to have
economic equity if the appraised value of the property exceeds the Company's
total cash investment plus accrued preferential returns and interest thereon, or
if the venture partner is entitled to current operating cash distributions.
Depreciation and Capitalization
Maintenance and repair costs are charged to operations as incurred.
Significant improvements and renewals are capitalized. Depreciation is computed
using the straight-line method based on the estimated useful lives of the
buildings and improvements. Leasing and financing costs are also capitalized and
amortized over the related agreement terms.
Rental Revenues
Rental revenues from certain operating leases with fixed rent increases or
rent credits are recognized on a straight-line basis over the terms of the
leases. The difference between straight-line rental revenues and cash rents
received in accordance with the terms of the leases is recorded as accounts
receivable.
Realizability of Real Estate Investments
The carrying value of the Company's real estate investments is reduced to
net realizable value, if lower. Since the Company's intention is to hold
properties for long-term investment, net realizable value is measured by the
recoverability of the investment carrying value through expected undiscounted
future cash flows, net of the cost of third-party financing associated with the
investment. As of December 31, 1995 and 1994, the estimated net realizable value
of each real estate investment either exceeded or approximated its carrying
value.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long
Lived Assets and for Long Lived Assets to Be Disposed Of" (SFAS 121), which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. As required, the Company will adopt SFAS
121 in the first quarter of 1996. Based upon current circumstances, management
believes adoption will not have any effect on the financial position of the
Company.
Cash Equivalents and Short-term Investments
Cash equivalents and short-term investments are stated at cost, plus
accrued interest, which approximates market. Such investments consist primarily
of certificates of deposit and commercial paper. The Company considers all
highly liquid debt instruments purchased with a maturity of 90 days or less to
be cash equivalents; otherwise, they are classified as short-term investments.
Financial Instruments
Mortgage notes payable and notes receivable are considered the Company's
most significant financial instruments at December 31, 1995. Based on the
interest rates on these notes, some of which are variable and
F-14
<PAGE> 140
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
several of which have recently been negotiated, the fair value of these
instruments approximates their carrying values.
Per Share Computations
Net income (loss) per share is computed by dividing net income (loss),
after deducting any Class A dividends, by the weighted average number of shares
outstanding during each year (3,584,350 in 1995, 1994 and 1993).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with the 1995 presentation. There is no effect on net income (loss) or cash flow
from operations.
3 REAL ESTATE INVESTMENTS
The Company's real estate investments are either owned in their entirety or
jointly through tenancies-in-common or joint ventures. Wholly owned property
operations are under the oversight of local management companies. For jointly
owned property, the Company's co-tenants or venture partners are responsible for
day-to-day operating activities under separate property management agreements,
and they are entitled to fees for such services. The joint venture agreements
provide for the funding of cash flow deficits by the venture partners in
proportion to ownership interests, and for the dilution of ownership interest in
cases where a partner does not so contribute. Under the tenancy-in-common
agreements, each co-tenant is responsible for funding its proportionate share of
cash flow deficits.
The Company's cash investments in joint ventures are in two forms: a
capital contribution generally subject to preferential cash distributions at a
specified rate and to priority distributions with respect to sale or refinancing
proceeds; and secured, interest-bearing loans to certain ventures. When
converted to tenancy-in-common ownership, these loans and the corresponding
accrued interest were classified as part of the Company's contribution to the
capital of the new entity.
Acquisitions
In July 1995, the Company purchased the Kingsview Industrial Center, an
83,000 square foot industrial building located in Carson, California. The total
purchase price was approximately $3,000,000.
The Company purchased an industrial building located in Tempe, Arizona, on
March 31, 1994, which is referred to as Broadway Industrial Center. The total
purchase price was approximately $2,350,000.
Sales
In November 1995, the Company sold its interest in the Peachtree Corners
Distribution Center investment for a purchase price of approximately
$10,000,000. After payment of selling expenses and the outstanding mortgage
loan, the Company received net cash proceeds of approximately $7,626,000,
including deposits of $125,000 and $1,165,000 received in March 1995 and June
1995. The outstanding principal
F-15
<PAGE> 141
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
balance of $2,250,000 on a $3,250,000 mortgage note payable which the buyer
issued to the Company in February 1995 was retired as part of the closing. The
loan had been secured by a first mortgage on the Peachtree Corners Distribution
Center and bore interest at the rate of 10% per annum. In July 1995, the Company
made a payment to reduce the outstanding principal by $1,000,000. The Company
recognized a gain on the sale of approximately $1,806,000.
In June 1995, the Company sold all of its interests and rights, including
its ground lease position, related to the Park North Business Center investment
for approximately $18,500,000. Proceeds from the sale of approximately
$12,900,000, net of the assumption of debt associated with the ground lease
property, were used to pay off the mortgage notes payable to Wells Fargo Realty
Advisors and the revenue bonds, which were owed by the ground lessee and
guaranteed by the Company (Note 5). After settlement of the debt and payment of
selling expenses, the Company received net cash proceeds of approximately
$6,825,000, including a deposit of $125,000 received in March 1995. The Company
recognized a gain of approximately $758,000.
During 1994, the Company sold two buildings at the Baygreen Industrial
Park. Proceeds from the sales totaled $1,782,925, including a $700,000 purchase
money mortgage note. Under the terms of this note, interest only is due monthly
at the rate of 9% per annum, and the note matures January 1, 1997. The note is
included in Notes Receivable in the accompanying consolidated balance sheet at
December 31, 1995 and 1994. The Company recognized a gain on these sales of
approximately $627,000 in 1994.
Restructurings
In September 1995, the Company paid approximately $100,000 to terminate an
incentive property management agreement related to Broadway Industrial Center
and paid approximately $200,000 in October 1995 to terminate an incentive
property management agreement related to Baygreen Industrial Park. The incentive
property management agreements represented a contingent equity interest in the
properties granted at the date of acquisition, payable upon sale, refinancing,
or termination. Therefore, the termination fees paid have been recorded as
acquisition costs and added to the Company's carrying value of the investments.
In August 1995, the Company entered into agreements with certain of its
co-venture partners to restructure the ownership of their joint venture
investments as tenancies-in-common between the Company and the respective
co-venturers. Certain amounts previously recorded by the Company as loans to the
joint ventures and corresponding accrued interest have been reclassified at book
value, as part of the Company's capital contribution to its ownership interest
in the tenancies-in-common. These transactions did not generate a gain or loss
or have an impact on shareholders' equity. Subsequent to the establishment of
the tenancies-in-common, the respective ownership interests of the Company and
its co-tenants-in-common are substantially as follows:
<TABLE>
<CAPTION>
COMPANY CO-TENANT
------- ---------
<S> <C> <C>
Central Distribution Center............................. 57.38% 42.62%
West Side Business Park................................. 75.49% 24.51%
Metro Business Park..................................... 69.03% 30.97%
Dominguez Properties.................................... 55.00% 45.00%
Columbia Place.......................................... 78.00% 22.00%
270 Technology Park..................................... 61.00% 39.00%
</TABLE>
As discussed further in Note 14, subsequent to December 31, 1995, the
Company entered into agreements with its various co-tenants to exchange
ownership interests such that the Company would have a 100% ownership interest
in certain of the properties owned by the tenancies-in-common and no ownership
interest in the others.
F-16
<PAGE> 142
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of January 1, 1994, the ownership of three partnerships that were formed
to own a portion of the Park North Business Center investment (the "Parknorth
Partnerships") was restructured whereby the Company became the controlling
venturer and increased its legal ownership percentage. On March 30, 1995, 100%
ownership of the property owned by the Parknorth Partnerships was transferred to
the Company. In addition, on March 30, 1995, the Company restructured its
long-term ground lease arrangement within the Park North Business Center. As
discussed under "Sales," the entire Park North Business Center investment was
sold on June 30, 1995.
The following is a summary of the real estate investment structures at
December 31, 1995:
<TABLE>
<CAPTION>
DATE
CONSOLIDATED DATE
LEGAL OR CONVERTED CONVERTED
OWNERSHIP FROM JOINT TO TENANCY-
INVESTMENT SHARE VENTURE IN-COMMON
------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
Broadway Industrial Center....................... 100.00% 03/31/94 --
Central Distribution Center...................... 57.38% -- 8/16/95
West Side Business Park.......................... 75.49% -- 8/16/95
Metro Business Park.............................. 69.03% -- 8/16/95
Carson Industrial Center(1)...................... 50.00% -- 3/29/90
Dominguez Properties............................. 55.00% -- 8/16/95
Los Angeles Corporate Center..................... 100.00% 12/18/90 --
University Business Center....................... 80.00% 11/01/93 --
Huntwood Associates.............................. 100.00% 12/31/93 --
Wiegman Associates(2)............................ 80.00% 12/31/93 --
Baygreen Industrial Park......................... 100.00% 10/26/93 --
Columbia Place................................... 78.00% -- 8/16/95
270 Technology Park.............................. 61.00% -- 8/16/95
Sample/I-95 Business Park........................ 100.00% 12/31/93 --
Kingsview Industrial Center...................... 100.00% 07/14/95 --
</TABLE>
- ---------------
(1) The Company has a note receivable of approximately $177,000 from its
co-tenant which bears interest at 10% and is secured by the co-tenant's
interest in the property.
(2) The Company has a preferred capital investment which bears interest at 12%.
F-17
<PAGE> 143
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4 REAL ESTATE ASSETS AND LIABILITIES
The following is a summary of the assets and liabilities underlying the
Company's real estate investments:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
PROPERTY
Land.................................................... $ 21,655,181 $ 24,018,575
Buildings and improvements.............................. 52,400,189 66,402,879
Accumulated depreciation................................ (5,752,574) (5,079,353)
Deferred leasing costs and other assets, net............ 1,162,722 1,332,458
Minority interest....................................... 1,509,970 1,471,483
--------- ---------
Total real estate assets........................... 70,975,488 88,146,042
Accounts receivable..................................... 2,048,357 2,254,603
Accounts payable and other liabilities.................. (627,080) (1,760,156)
--------- ---------
$ 72,396,765 $ 88,640,489
========= =========
Mortgage notes payable to third-parties (Note 5)........ $ 39,333,349 $ 49,219,448
========= =========
INVESTMENTS IN TENANCIES-IN-COMMON AND JOINT VENTURES
Land.................................................... $ 8,246,048 $ 8,246,048
Buildings and improvements.............................. 33,965,653 35,542,264
Accumulated depreciation................................ (11,791,003) (12,370,021)
Cash.................................................... 511,717 346,176
Other, net.............................................. 2,921,034 3,521,924
--------- ---------
Total assets....................................... 33,853,449 35,286,391
--------- ---------
Mortgage notes payable to third-parties (Note 5)........ 31,601,919 32,127,307
Other................................................... 632,950 1,913,431
--------- ---------
Total liabilities.................................. 32,234,869 34,040,738
--------- ---------
Net assets.............................................. $ 1,618,580 $ 1,245,653
========= =========
Company's share:
Loans to joint ventures............................... $ -- $ 4,859,903
Capital............................................... 2,310,781 (2,224,285)
--------- ---------
$ 2,310,781 $ 2,635,618
========= =========
</TABLE>
As of December 31, 1994 assets of joint ventures exclude capitalized
interest or preferred returns to the Company and liabilities of joint ventures
exclude amounts owed to the Company in connection with secured loans, accrued
interest thereon, or accrued preferred returns. As part of the conversion to
tenancies-in-common as discussed in Note 3, these items were converted at book
value to the Company's ownership interest.
F-18
<PAGE> 144
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5 MORTGAGE NOTES PAYABLE
Mortgage notes payable on Properties are summarized below. They are
collateralized by real estate and, in certain cases, the assignment of rents.
The mortgage notes are generally non-recourse to the other assets of the
Company.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
UNIVERSITY BUSINESS CENTER
CIGNA; interest at 9.06%, payable monthly; principal payments
based on a 20-year amortization schedule; remainder due April 1,
2000............................................................ $ 9,353,947 $13,000,000
CIGNA; interest at 9.37%, payable monthly; principal due January
1, 1997......................................................... 10,000,000 10,000,000
HUNTWOOD ASSOCIATES
Wells Fargo Bank; interest is a fixed rate option with interest
based on LIBOR plus 3.25% and a variable rate option with
interest based on the prime rate plus 1% (the effective interest
rate was 9.5% at December 31, 1995); principal due January 15,
1997............................................................ 2,292,993 2,350,292
Massachusetts Mutual Life Insurance Company; interest at 9.875%,
payable monthly; principal due June 1, 1996..................... 10,000,000 10,000,000
WIEGMAN ASSOCIATES
Massachusetts Mutual Life Insurance Company; interest at 9.875%,
payable monthly; principal due June 1, 1996..................... 6,700,000 6,700,000
Allstate Insurance Company; interest at 8.75%, payable monthly;
principal due October 1, 1997................................... 986,409 1,011,311
PARK NORTH BUSINESS CENTER
Wells Fargo Realty Advisors; interest at .65% over the prime rate
or 1.75% over LIBOR, payable monthly. Principal balance was paid
at maturity on June 30, 1995.................................... -- 3,362,692
Wells Fargo Realty Advisors; interest at .65% over the prime rate
or 1.75% over LIBOR, payable monthly. Principal balance was paid
at maturity on June 30, 1995.................................... -- 2,795,153
----------- -----------
$39,333,349 $49,219,448
=========== ===========
</TABLE>
Mortgage notes payable to third-parties, based on contractual terms in
existence as of December 31, 1995, mature as follows:
<TABLE>
<CAPTION>
TENANCIES-IN-
YEAR ENDED DECEMBER 31, PROPERTIES(1) COMMON(2)
------------------------------------------------------ ------------- -------------
<S> <C> <C>
1996.................................................. $ 16,974,870 $ 4,280,310
1997.................................................. 13,403,318 10,997,500
1998.................................................. 228,070 5,203,115
1999.................................................. 249,613 1,854,579
2000.................................................. 8,477,478 309,903
Thereafter............................................ -- 8,956,512
------------ ------------
$ 39,333,349 $ 31,601,919
============ ============
</TABLE>
- ---------------
(1) Includes 100% of the joint venture debt.
(2) Amounts represent 100% of the tenancies-in-common debt. The Company's share
of notes payable is consistent with its respective ownership interest (Note
3) except at West Side Business Park where the Company's share of the
obligation under the notes payable is 57.38%.
F-19
<PAGE> 145
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage notes payable at December 31, 1994 do not include revenue bonds at
Park North Business Center owed by the ground lessee, repayment of which was
guaranteed by the Company. The ground lease arrangement resulted from a
transaction in which the Company purchased land in a portion of Park North
Business Center for lease back to the seller for a term of 60 years. Contractual
rent was $142,440 per annum. The Company's guarantee of the revenue bonds was
extinguished in connection with the sale of the property in June 1995.
The Company guaranteed 50% of the outstanding obligation of the revenue
bonds at 270 Technology Park up to a maximum of $2,000,000. The outstanding
principal balance of the bonds at December 31, 1995 and 1994 was $3,713,011. As
discussed in Note 14, subsequent to December 31, 1995, the Company exchanged its
ownership interest in the 270 Technology Park property, and its guarantee of the
revenue bonds was extinguished.
6 RESULTS OF REAL ESTATE INVESTMENTS
Operations
The following is a summary of the operating results of the properties
underlying the Company's real estate investments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
PROPERTY
Rentals..................................... $12,679,060 $13,338,097 $ 3,128,332
Operating expenses.......................... (3,030,306) (3,072,560) (821,215)
Interest expense............................ (4,348,126) (4,696,303) (358,177)
Depreciation and amortization............... (3,735,914) (3,999,341) (810,305)
Minority interest........................... (119,013) (117,890) $ (10,301)
----------- ----------- -----------
$ 1,445,701 $ 1,452,003 $ 1,128,334
=========== =========== ===========
INVESTMENTS IN TENANCIES-IN-COMMON AND
JOINT VENTURES
Rentals..................................... $ 6,856,262 $ 7,442,165 $14,850,192
Operating expenses.......................... (1,223,767) (1,136,267) (2,749,486)
Interest expense............................ (2,857,655) (2,931,718) (7,615,524)
Depreciation and amortization............... (1,921,274) (4,551,781) (4,551,489)
----------- ----------- -----------
$ 853,566 $(1,177,601) $ (66,307)
=========== =========== ===========
Company share:
Interest on loans to joint ventures....... $ 74,268 $ 63,136 $ 208,165
Equity in net income (losses)............. 673,799 (1,417,865) (16,832)
----------- ----------- -----------
$ 748,067 $(1,354,729) $ 191,333
=========== =========== ===========
</TABLE>
F-20
<PAGE> 146
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rentals under non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED TENANCIES-IN-
DECEMBER 31, PROPERTIES COMMON
---------------------------------------------------- ----------- -------------------
<S> <C> <C>
1996........................................... $ 9,051,444 $ 4,551,838
1997........................................... 8,702,558 2,833,264
1998........................................... 7,728,819 2,526,885
1999........................................... 6,890,149 2,389,048
2000........................................... 6,022,828 2,265,552
Thereafter.......................................... 16,546,140 9,180,224
----------- -----------
$54,941,938 $23,746,811
=========== ===========
</TABLE>
Investment Valuation Allowance
The estimated net realizable value of the undeveloped land at Sample/I-95
Business Park declined significantly in 1993. In accordance with the Company's
policy, the carrying value was reduced to approximate estimated net realizable
value, resulting in an investment valuation allowance of $900,000 in 1993.
Significant Lease Transactions
In September 1994, M.O.R. XXXVI Associates Limited Partnership, a
partnership in which the Company is a general partner (the "Partnership") and
the owner of Columbia Place, modified the existing terms of its sole lease and
mortgage loan agreements. BDM Federal, Inc. ("BDM"), the original tenant with a
lease expiring in March 1998, desired to vacate the building and Ceridian
Corporation ("Ceridian"), a new tenant, desired to occupy the building. BDM,
Ceridian, and the Partnership entered into a series of agreements (the
"Agreements") under which BDM is obligated for certain payments to the
Partnership through March 1998. The payments are contingent on future events and
are being recognized as income when the contingencies expire. In 1994,
approximately $864,000 was recognized as additional income from BDM as a result
of the transaction.
Ceridian entered into a lease with the Partnership which commenced
September 1994 and expires December 2009, subject to earlier termination options
in December 2004 and December 2006.
Ceridian was responsible for the cost of all of its tenant improvements and
chose to substantially re-fit this space. This resulted in the write-off by the
Partnership of approximately $2,635,000 of tenant improvements and other capital
costs in 1994.
In conjunction with the leasing transaction, the mortgage note payable to a
third-party lender of approximately $10,490,000 was restructured. The interest
rate was reduced from 10.125% to 8.875% per annum, effective December 1, 1994,
and the maturity date was extended from May 1998 to December 2009. The maturity
date may be accelerated if Ceridian exercises its termination options. The
revised mortgage note requires monthly payments of principal and interest based
on a 20-year amortization schedule.
The Partnership's costs of these transactions have been capitalized and are
being amortized over the life of the lease or loan as applicable.
In January 1996, the Company executed a lease agreement which increased the
occupancy of the Los Angeles Corporate Center property from 50% to 100%.
F-21
<PAGE> 147
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7 LINE-OF-CREDIT
At December 31, 1995, the Company had an unsecured line-of-credit agreement
with a bank which was due to expire on January 31, 1996. Under its terms, the
Company could borrow up to $5,000,000 at the prime rate of interest or LIBOR
plus 1.5%. The average outstanding balance on the line-of-credit during 1995 and
1994 was $2,091,644 and $3,402,000, respectively, and the weighted average
interest rate was 7.85% and 6.18%, respectively. There were no borrowings in
1993.
Subsequent to December 31, 1995, the bank agreed to extend the
line-of-credit agreement to July 31, 1996. All other terms and conditions are
unchanged.
8 SHAREHOLDERS' EQUITY
Increase in Authorized Shares
The total number of authorized shares of the Company was increased from
8,000,000 to 20,000,000 effective June 14, 1994.
Class A Common Stock
On June 3, 1985, the Company sold one share of Class A Common Stock (par
value of one dollar) to the Advisor for $50,000. As the holder of such share,
the Advisor is entitled to receive 10% of the Company's net gain (as defined)
from the disposition of properties, reduced by any accumulated net losses. Upon
termination of the Advisory Agreement, the Company will have an option to
purchase the share of Class A Common Stock for an amount equal to 10% of the net
gain which would be realized by the Company had all of the real estate owned by
the Company as of the date of termination been sold at its fair market value. If
the Company does not elect to purchase the Class A Common Stock, such share will
automatically convert to shares of common stock of the Company. See Note 14 for
further discussion of the Class A Common Stock.
Shareholders' Rights Plan
The Company's Board of Directors unanimously adopted a shareholders' rights
plan on June 28, 1990 applicable to shareholders of record on July 19, 1990. The
plan, as amended on September 20, 1995, provides for the dividend of a right to
buy one share of common stock for a stated amount determined in accordance with
the provisions of the plan for each share of common stock outstanding. Rights
would initially become exercisable on the earlier of (1) the tenth day after the
date on which a person has acquired beneficial ownership of 15% or more of the
Company's common stock or (2) the tenth business day after a person commences a
tender or exchange offer, the consummation of which would result in such person
owning 30% or more of the Company's common stock.
9 MANAGEMENT ADVISORY FEES
The Company has an agreement with the Advisor, pursuant to which the
Advisor provides investment management and administrative services to the
Company. Fees for these services totaled $451,863, $714,761 and $601,535 for
1995, 1994 and 1993, respectively, and are determined as:
a. A base fee of 7.5% of net cash flow (as defined in the Advisory
Agreement) from sources other than short-term assets, as defined.
b. An incentive fee of 5% of net cash flow (as defined in the Advisory
Agreement) from sources other than short-term assets, as defined.
c. A short-term investment fee of 0.25% of average annual short-term
assets, as defined.
F-22
<PAGE> 148
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995 and 1994, payments of the incentive fees totaling
$2,573,917 and $2,473,054, respectively, have been deferred and become payable
only after the Company has achieved a specified return to shareholders, or
refinancing or sale proceeds are distributed to shareholders. Payment of the
deferred fee would also become payable upon termination or resignation of the
Advisor. See Note 14 for further discussion of the management advisory fee.
10 DEFERRED FINANCING COSTS
In 1994, the Company commenced the marketing of additional equity on a
private placement basis and incurred $501,227 in Deferred Financing Costs in
connection with pursuing the private placement and arranging for an increased
line of credit, which was contingent on additional equity. Discussions with
potential investors did not produce an agreement on the terms of an equity
investment and the Company wrote off the Deferred Financing Costs in 1995.
11 INCOME TAXES
The Company believes that it continues to qualify as a real estate
investment trust under the Internal Revenue Code of 1986, as amended. The
Company has distributed all of its taxable income for 1995, 1994 and 1993.
Accordingly, no provision for income taxes has been made in the accompanying
consolidated financial statements. For federal income tax purposes, the amounts
distributed as dividends were ordinary income, except for $1.06 per share, $.17
per share and $.06 per share in 1995, 1994 and 1993, respectively, which relate
to capital gains. No portion of the dividend in any of the years presented
relates to a return of capital.
12 NONCASH INVESTING AND FINANCING ACTIVITIES
The restructuring of certain joint ventures, as more fully described in
Note 3, resulted in the following noncash investing and financing activities:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Conversion of loans to joint ventures and
accrued interest to Property and
tenancies-in-common........................ $4,999,071 $ 4,109,037 $ 265,694
Conversion of investments in joint ventures
to Property................................ -- -- 14,424,483
Conversion of losses of joint ventures in
excess of investment to Property........... -- (2,095,608) --
Recording of third party mortgage notes...... -- 9,310,914 46,864,843
---------- ----------- -----------
Total converted assets............. $4,999,071 $11,324,343 $61,555,020
========== =========== ===========
</TABLE>
13 PROFESSIONAL FEES
Certain professional fees are costs incurred by the Company related to its
consideration of various strategic alternatives aimed at maximizing shareholder
value and subsequent solicitation of proposals to acquire the Company. Included
in professional fees for the year ended December 31, 1995 is approximately
$352,000 of investment advisory fees earned by Morgan Stanley and Co.
Incorporated (Morgan Stanley) and legal fees of $324,000 associated with this
process.
14 SUBSEQUENT EVENTS
Merger Agreement
In February 1996, the Company entered into an Agreement and Plan of Merger
under which the Company will be merged into EastGroup Properties (EastGroup). In
the merger, each share of the
F-23
<PAGE> 149
COPLEY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's common stock will be converted into EastGroup shares of beneficial
interest with a value of $15.60, subject to the limitations described below.
The value of EastGroup shares for purposes of calculating the ratio at
which the Company's shares will be converted into EastGroup shares in the merger
will be the average of the closing price of EastGroup shares on the New York
Stock Exchange on the 20 trading days immediately preceding the fifth trading
day prior to the effective date of the merger (the "EastGroup Stock Price");
however, the EastGroup Stock Price will be deemed to equal $20.25 if the average
price of EastGroup shares calculated above is less than or equal to $20.25, and
$23.00 if the average price of EastGroup shares is greater than or equal to
$23.00. The Company has the right, waivable by it, to terminate the merger
agreement without liability if the average closing price of EastGroup shares on
the New York Stock Exchange on the 20 trading days immediately preceding the
fifth trading day prior to (i) the date on which the Securities and Exchange
Commission declares EastGroup's Registration Statement with respect to the
merger effective or (ii) the date on which the Company's stockholders' meeting
with respect to the merger is held, is equal to or less than $18.25.
The merger is subject to several conditions including approval by the
shareholders of both the Company and EastGroup and registration of the shares to
be issued in the merger with the Securities and Exchange Commission. Upon the
consummation of the merger, the Company has committed to pay Morgan Stanley a
transaction fee equal to $1.5 million, against which approximately $350,000 of
other fees and expenses previously paid to Morgan Stanley will be credited.
Upon the event of merger, the Advisor agrees to the termination of the
Advisory Agreement and relinquishment of its right to, and interest in, the
Class A share in consideration of payment by the Company of 95% of the amount of
the unpaid incentive advisory fees.
February Exchange of Interests
Effective February 1, 1996, the Company exchanged its co-tenant interest in
the 270 Technology Park property to obtain 100% ownership of the Columbia Place
property. In addition, the Company received $50,000 in cash and a secured
promissory note of $180,000 bearing interest at 9.56% and maturing on February
1, 2000, with annual interest and principal payments of $56,250. The note is
secured by a second deed of trust on the 270 Technology Park property.
Effective February 2, 1996, the Company exchanged its co-tenant interests
in the Carson Industrial Center, Central Distribution Center, West Side Business
Park and the three El Presidio buildings (comprising a portion of the Dominguez
Properties) to obtain 100% ownership of the Metro Business Park tenancy-in-
common and the remaining building in the Dominguez Properties tenancy-in-common.
As part of the exchange, the Company paid $138,000 in cash and forgave its note
receivable from its co-tenant in the Carson Industrial Center property of
approximately $177,000.
F-24
<PAGE> 150
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
LNH REIT, Inc.
We have audited the accompanying consolidated balance sheets of LNH REIT,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LNH REIT, Inc.
and subsidiaries at December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Jackson, Mississippi
March 15, 1996
F-25
<PAGE> 151
LNH REIT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Mortgage loans..................................................... $ 7,135 $ 5,149
Mortgage loans subject to foreclosure proceedings.................. -- 5,960
Real estate properties:
Earning
Warehouse..................................................... 4,166 4,073
Shopping center............................................... 6,465 6,867
Accumulated depreciation...................................... (796) (427)
Joint venture in Cowesett........................................ 6,011 --
Non-earning land................................................. 776 3,067
------- -------
23,757 24,689
Less allowance for losses.......................................... (275) (525)
------- -------
23,482 24,164
Marketable equity securities....................................... 675 525
Cash and cash equivalents.......................................... 1,016 1,660
Accrued interest and other receivables............................. 502 285
------- -------
$ 25,675 $ 26,634
======= =======
LIABILITIES
Minority interest.................................................. $ 1,476 $ 1,510
Accrued expenses and other liabilities............................. 750 493
------- -------
2,226 2,003
------- -------
STOCKHOLDERS' EQUITY
Common stock, $.50 par value, 15,000,000 shares authorized,
2,200,000 shares issued and outstanding in 1995 and 1994......... 1,100 1,100
Paid in capital.................................................... 24,839 27,215
Deficit............................................................ (2,996) (4,040)
Unrealized gain on marketable equity securities.................... 506 356
------- -------
23,449 24,631
------- -------
$ 25,675 $ 26,634
======= =======
</TABLE>
See notes to consolidated financial statements
F-26
<PAGE> 152
LNH REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------
1995 1994
------ ------
<S> <C> <C>
REVENUES
Revenue from real estate properties........................................ $1,451 $1,249
Interest income:
Mortgage loans........................................................... 889 574
Cash equivalents and other............................................... 52 101
Equity in operation of Cowesett joint venture.............................. 40 --
Other income............................................................... 47 226
------ ------
2,479 2,150
------ ------
EXPENSES
Management fees............................................................ 294 338
Real estate expenses
Operating................................................................ 521 605
Depreciation............................................................. 369 277
Professional fees.......................................................... 283 49
General and administrative................................................. 216 178
Provision for losses....................................................... 189 525
Minority interest expense.................................................. 98 54
------ ------
1,970 2,026
------ ------
INCOME BEFORE GAIN ON INVESTMENTS.......................................... 509 124
------ ------
GAIN ON INVESTMENTS
Real estate and mortgage loans............................................. 535 135
------ ------
NET INCOME................................................................. $1,044 $ 259
====== ======
NET INCOME PER SHARE....................................................... $ .47 $ .12
====== ======
Average number of shares outstanding....................................... 2,200 2,200
====== ======
</TABLE>
See notes to consolidated financial statements
F-27
<PAGE> 153
LNH REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------
1995 1994
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................... $ 1,044 $ 259
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred financing fees and discount on mortgage
loans.............................................................. (62) (60)
Depreciation........................................................ 378 277
Joint Venture investment............................................ (50) --
Provision for losses................................................ 189 525
Gain on investments................................................. (535) (135)
Other............................................................... (45) (35)
Net change in receivables, payables and other assets................ 49 (14)
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES.................................... 968 817
-------- --------
INVESTING ACTIVITIES
Collections on mortgage loans.......................................... 269 3,999
Improvements to real estate............................................ (130) (228)
Proceeds from sale of real estate...................................... 625 44
-------- --------
CASH PROVIDED BY INVESTING ACTIVITIES.................................... 764 3,815
-------- --------
FINANCING ACTIVITIES
Dividends paid......................................................... (2,376) (4,312)
-------- --------
CASH USED IN FINANCING ACTIVITIES........................................ (2,376) (4,312)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (644) 320
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................... 1,660 1,340
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................................. $ 1,016 $ 1,660
======== ========
</TABLE>
See notes to consolidated financial statements
F-28
<PAGE> 154
LNH REIT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------
1995 1994
------- -------
<S> <C> <C>
COMMON STOCK, $.50 PAR VALUE
Balance at beginning and end of period................................. $ 1,100 $ 1,100
------- -------
PAID-IN CAPITAL
Balance at beginning of period......................................... 27,215 31,527
Cash dividends declared and paid....................................... (2,376) (4,312)
------- -------
Balance at end of period............................................... 24,839 27,215
------- -------
DEFICIT
Balance at beginning of period......................................... (4,040) (4,299)
Net income............................................................. 1,044 259
------- -------
Balance at end of period............................................... (2,996) (4,040)
------- -------
UNREALIZED GAIN ON MARKETABLE EQUITY SECURITIES
Balance at beginning of period......................................... 356 --
Change in unrealized gain on securities................................ 150 356
------- -------
Balance at end of period............................................... 506 356
------- -------
TOTAL STOCKHOLDERS' EQUITY............................................... $23,449 $24,631
======= =======
</TABLE>
See notes to consolidated financial statements
F-29
<PAGE> 155
LNH REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company operates as a real estate investment trust ("REIT") under
Sections 856-860 of the Internal Revenue Code. The Company's revenues consist
principally of rental income from operating real estate properties and interest
income from mortgage loans. At December 31, 1995, the Company's investments
consisted principally of four mortgage loans collateralized by real estate,
three operating real estate properties (two shopping centers and one industrial
distribution center), and undeveloped land.
Proposed Merger
On September 6, 1995 (amended on December 6, 1995), LNH REIT, Inc. and
EastGroup Properties announced that the Special Committees of the Boards of each
company had agreed in principle to a merger between LNH and EastGroup. See Note
L to the consolidated financial statements for further details of this event.
Principles of Consolidation
The consolidated financial statements include the accounts of LNH REIT,
Inc., its wholly owned subsidiaries and a 77.78% owned joint venture (referred
to collectively as "LNH" or "the Company"). The property included in the joint
venture is the Liberty Corners Shopping Center located in Kansas City, Missouri.
The Liberty Corners joint venture's assets, liabilities, revenues and expenses
are recorded by the Company with minority interest provided for the 22.22% not
owned. All significant intercompany transactions and accounts have been
eliminated in consolidation.
For years ending after December 31, 1992, the Company adopted the financial
statement reporting provisions of Regulation S-B of the Securities and Exchange
Commission.
Recognition of Interest Income
Interest is taken into income when earned. The Company discontinues the
accrual of income when circumstances exist which cause the collection of such
income to be doubtful. The determination to discontinue accruing income is made
after review by management of all relevant facts including delinquency in
payment of principal, interest and the credit of the borrower.
Revenue from Real Estate Properties
Minimum rents are recognized ratably over the lease term. Rents that
represent tenant reimbursements of certain expenses are recognized as the
applicable services are provided or the expenses incurred and totalled $320,000
in 1995 and $300,000 in 1994.
Earnings Per Share
Earnings per share is based on the average number of shares of common stock
outstanding during each year.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-30
<PAGE> 156
LNH REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Real Estate Properties
Foreclosed properties are recorded at the lower of cost or fair value at
the date of foreclosure. A provision for losses, if any, is determined at the
time of foreclosure in an amount equal to the excess of the recorded investment
over estimated fair value. The carrying value of real estate properties are
evaluated in relation to current estimates of net realizable value. If
necessary, a provision for losses is recorded to write-down carrying value to
the estimated net realizable value.
Depreciation
Depreciation for financial reporting purposes is provided by the
straight-line method over the estimated useful lives of the property. Buildings
are depreciated over a 30 year estimated useful life and tenant improvements
over a 5 year estimated useful life. Depreciation for tax reporting purposes is
provided by the straight-line method over the applicable Modified Accelerated
Cost Recovery System (MACRS) life.
Allowance for Possible Losses
Prior to January 1, 1995, the Company followed the method of determining
the allowance for possible losses prescribed by the AICPA Statement of Position
on Accounting Practices for Real Estate Investment Trusts. Under this method,
the Company established an allowance for possible losses on mortgage loans based
upon management's evaluation of the recoverability of each loan in its portfolio
through a comparison of the carrying value of an investment with its estimated
net realizable value. In determining estimated net realizable value,
consideration is given to such factors as the financial condition of the
borrower and the determination of collectibility; the estimated selling price a
property will bring if exposed for sale in the open market allowing a reasonable
time to find a purchaser; prevailing economic conditions; expectations of future
development; the estimated cost to complete and improve such property to the
condition used in determining the estimated selling price; the cost to dispose
of the property; and the cost to hold the property (including an interest factor
based on the Company's cost of funds) to the estimated time of sale.
Beginning January 1, 1995, the Company adopted Financial Accounting
Standards Board No. 114, "Accounting by Creditors for Impairment of a Loan."
Under the new standard, the 1995 allowance for losses related to loans that are
identified for evaluation in accordance with Statement 114 is based on
discounted cash flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans. The effect
of adopting FASB 114 on results of operations for 1995 and the allowance for
possible losses was not material.
This evaluation is inherently subjective as it requires material estimates
including the amounts and timing of future cash flows expected to be received on
impaired loans that may be susceptible to significant change.
Income Taxes
The Company qualified as a real estate investment trust under Sections
856-860 of the Internal Revenue Code and intends to continue to qualify as such.
The Company has distributed all of its taxable income to its shareholders, and,
accordingly, no provision for federal or state income taxes has been made and no
income taxes have been paid. Distributions paid per share in 1995 and 1994 for
income tax purposes were as follows:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Ordinary Income.............................................. $ .05 $ .63
Return of Capital............................................ 1.03 1.33
----- -----
Total...................................................... $1.08 $1.96
===== =====
</TABLE>
F-31
<PAGE> 157
LNH REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Taxable income differs from income reported for financial reporting
purposes primarily because of (1) the timing of the deduction for the provision
for possible losses, writedowns of real estate investments and losses on
securities, (2) different depreciation methods and lives, and (3) different
rates of interest income accrual.
Marketable Equity Securities
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and classified its investments as securities available-for-sale.
Accordingly, as of December 31, 1995 and 1994, investment securities are carried
at fair value with the unrealized gain of $506,000 and $356,000, respectively,
presented as a separate component of stockholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and highly liquid
investments with original maturities of three months or less.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year's presentation.
NOTE B -- MORTGAGE LOANS
The unpaid balances of mortgage loans, summarized by type of loan, are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
TYPE OF LOAN 1995 1994
---------------------------------------------------------- ------ -------
(IN THOUSANDS)
<S> <C> <C>
Shopping Centers.......................................... $1,868 $ 7,822
Land...................................................... 5,267 3,287
------ -------
$7,135 $11,109
====== =======
</TABLE>
The unpaid balances of mortgage loans, which bear interest at an average
rate of 8.91%, are scheduled to mature in succeeding years as follows:
<TABLE>
<CAPTION>
YEAR
----------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996........................................... $ 144
1997........................................... 154
1998........................................... 2,034
1999........................................... 4,803
------
$7,135
======
</TABLE>
Because of the circumstances discussed in Note C regarding the Cowesett
Corners Shopping Center, the interest income on this loan was accounted for on
the cash basis. The amount of interest foregone on this loan due to this
accounting method was $364,000 and $562,000 in the years ending December 31,
1995 and 1994, respectively.
F-32
<PAGE> 158
LNH REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amount of loan discounts and related accumulated amortization reflected
as a reduction to the carrying value of mortgage loans were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
--------- --------
<S> <C> <C>
Loan discounts........................................ $ 292,000 $292,000
Accumulated amortization.............................. (108,000) (59,000)
--------- --------
$ 184,000 $233,000
========= ========
</TABLE>
The federal income tax basis of mortgage loans at December 31, 1995 is
approximately $7,319,342. The federal income tax return for the year ended
December 31, 1995 has not been filed, and, accordingly, the income tax basis of
mortgage loans as of December 31, 1995 is based on preliminary data.
NOTE C -- REAL ESTATE INVESTMENTS
At December 31, 1995, the Company's investment in land includes three
parcels of undeveloped land, approximately 141 acres in total, located in
Houston, Texas. The land has a carrying value of $776,000 at December 31, 1995.
Also included in real estate investments at December 31,1995 are the Linpro
Commerce Center in Fort Lauderdale, Florida, the Liberty Corners shopping center
in Kansas City, Missouri, and the Cowesett Corners shopping center in Warwick,
Rhode Island. The Linpro Commerce Center is a 99,000 square foot industrial
building, and it is used by tenants as an office, showroom and warehouse. Upon
foreclosure in 1992, the property was recorded at its estimated fair value of
$3,800,000, resulting in a loss of $1,350,000. At December 31, 1995, the
property was 95% occupied.
The Liberty Corners Shopping Center is a 121,432 square foot commercial
facility that was 85% leased at December 31,1995. The shopping center was
collateral to a 77.78% mortgage loan participation the Company owned with an
outstanding principal balance of $6,689,000 and a carrying value, net of
allowance for losses and deferred income, of $5,294,000. The Company received a
deed in lieu of foreclosure to Liberty Corners on February 25, 1994, and title
to the property is held as tenants in common with the 22.22% participant in the
mortgage loan. The Company recorded the total assets, liabilities, revenues and
expenses of the center with minority interest provided for the 22.22% not owned.
The Company recorded the original investment at $6,806,000, which included the
participant's 22.22% minority interest of $1,512,000. In December 1995, the
carrying value of the Liberty Corners Shopping Center was adjusted to net
realizable value. The writedown of $439,000 net of minority interest, is
reflected in the Company's December 31, 1995 consolidated financial statements.
The resulting carrying value of Liberty Corners is management's best estimate of
the property's net realizable value.
The Cowesett Corners Shopping Center is a 135,713 square foot shopping
center in Warwick, Rhode Island. The Company acquired title on December 1, 1995
through foreclosure and the Company recorded its net loan investment of
$5,971,000 as an investment in a joint venture. The company owns 50% of the
investment and accounts for this investment on the equity method of accounting.
The investment at December 31, 1995 amounted to $6,011,000. The shopping center
is 97% leased at December 31, 1995.
F-33
<PAGE> 159
LNH REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule by year of future approximate minimum rental
receipts under non-cancelable leases for the Linpro Commerce Center, Liberty
Corners Shopping Center and Cowesett Corners Shopping Center as of December 31,
1995:
<TABLE>
<CAPTION>
YEAR
------------------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996................................................... $ 2,555
1997................................................... 2,393
1998................................................... 2,165
1999................................................... 1,571
2000................................................... 1,391
Subsequently........................................... 6,998
------------
$ 17,073
============
</TABLE>
The federal income tax basis of real estate, net of depreciation as of
December 31, 1995, is approximately $27,029,000. The federal income tax return
for the year ended December 31, 1995 has not been filed, and, accordingly, the
income tax basis of real estate as of December 31, 1995 is based on preliminary
data.
NOTE D -- ALLOWANCE FOR LOSSES
Activity in the allowance account was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------
1995 1994
----- -------
<S> <C> <C>
Beginning balance......................................... $ 525 $ 1,356
Provision for losses...................................... 525
Charge-offs on foreclosures and sales..................... (1,356)
Recoveries of provisions for losses....................... (250)
----- -------
Ending balance............................................ $ 275 $ 525
===== =======
</TABLE>
At December 31, 1995, the recorded investment in mortgage loans that was
considered to be impaired under FASB 114 was one mortgage loan (Citrus Center)
with a carrying value of $1,868,000. This loan, for which the Company owns a
20.99% participation, was modified in 1995. The interest rate was reduced from
9% to 8%, with the 1% difference to be deferred until the note matures on
November 30, 1998. Certain payments past due at June 1995 along with the unpaid
principal balance is due on November 30, 1998. At December 31, 1995, the balance
of the allowance for losses related to this mortgage loan. This allowance
($275,000) had been recorded at December 31, 1994. For the years ended December
31, 1995 and 1994, the Company recognized interest income on this impaired loan
of $174,000 and $85,000, respectively, compared to interest income according to
its original terms of $172,000 in each year.
During the year ended December 31, 1995 and 1994, the Company's investment
in a mortgage loan collateralized by Cowesett Corners Shopping Center was
impaired and nonperforming. At December 31, 1994, the Company had recorded an
allowance for losses related to this mortgage loan of $250,000. Because of the
expected pay-off of this mortgage loan in 1995, the Company reduced its
allowance for losses by this amount. The mortgage loan was foreclosed on
effective December 1, 1995. See Note C. For the years ended December 31, 1995
and 1994, the Company recognized interest income on this loan of $222,000 and
$58,000, respectively, compared to interest income according to its original
terms of $568,000 and $620,000, respectively.
F-34
<PAGE> 160
LNH REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- RELATED PARTY TRANSACTIONS
Until April 1992, the Company was managed pursuant to a Management
Agreement with L & N Housing Managers, Inc. ("Prior Manager"), a wholly-owned
subsidiary of Lomas Financial Corporation ("LFC"). The Prior Manager served as
the Company's investment advisor, administering the day-to-day affairs of the
Company and representing the Company in its dealing with third parties, subject
to the supervision of the Company's Board of Directors. LFC also owned 352,000
shares of the Company's common stock.
In 1992, EastGroup Properties, a Maryland real estate investment trust
("EastGroup"), and Walker Investments L.P. ("Walker"), purchased 352,000 shares
of the Company's Common Stock from LFC. The agreement pursuant to which the
shares were purchased (the "Agreement") further provided that the Prior Manager
would assign its rights and duties as manager under the Management Agreement to
LNH REIT Managers, a Mississippi general partnership (the "Manager") which is an
affiliate of EastGroup and Walker. The Management Agreement was amended to
substitute the Manager for the Prior Manager under the Management Agreement.
EastGroup and Walker agreed to pay an aggregate of $406,000 to the Company, in
consideration of the assignment of the Prior Manager's duties and
responsibilities as manager under the Management Agreement to LNH REIT Managers.
The $406,000 has been paid in installments subject to the maximum amount that
the Company may receive in a year without violating the 95% gross income test
set forth in Section 856(c) of the Internal Revenue Code. The unpaid balance of
the $406,000 accrued simple interest at the rate of 6.6% and the obligation of
EastGroup and Walker to pay any unpaid balance of the $406,000 terminated on
January 1, 1996. During the years ended December 31, 1995 and 1994, the Company
accrued $41,000 and $125,000, respectively, as income pursuant to the assignment
of the Management Agreement and recorded $2,000 and $10,000, respectively, in
interest on the unpaid balance. The final payment on this obligation was
received in September 1995.
On March 24, 1995, EastGroup and its wholly owned subsidiary, EGP Managers,
Inc. ("EGP Managers"), entered into an agreement (the "March 24, 1995
Agreement") with Walker and certain entities affiliated with Walker and its
affiliates pursuant to which EastGroup agreed to purchase 383,775 shares of the
Company's Common Stock from Walker and EGP Managers agreed to purchase Walker's
interest in the Manager. On that same date, the Board of Directors of the
Company approved an additional amendment to the Management Agreement pursuant to
which EGP Managers would assume the obligations and duties of Managers under the
Management Agreement effective upon the Closing of the transactions set forth in
the March 24, 1995 Agreement, which Closing took place on April 3, 1995. The
Management Agreement, as amended, was renewed at its original expiration on
December 31, 1995 but it will terminate on the effective date of the Company's
merger with EastGroup Properties.
The Manager had entered into an Administration Agreement with Congress
Street Properties, Inc. (" Congress Street"), a Delaware corporation and then an
affiliate of EastGroup, pursuant to which Congress Street provided day-to-day
administrative services to the Company, including office space, equipment and
personnel incident thereto. The Administration Agreement was terminated by EGP
Managers effective March 31, 1995.
Pursuant to the Management Agreement, the Company has no employees. All
personnel required for the administration of the Company's operations, including
LNH's officers, were compensated by EastGroup. The Company bears the costs of
independent agents, such as attorneys, auditors and appraisers, retained on
behalf of the Company, of expenses connected with the acquisition, operation and
disposition of its real property interests; and of shareholder communications,
directors' fees and franchise taxes.
F-35
<PAGE> 161
LNH REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- MARKETABLE EQUITY SECURITIES
The Company's investment in marketable equity securities consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------- -------------------------------
QUOTED QUOTED
OWNERSHIP MARKET OWNERSHIP MARKET
INTEREST COST VALUE INTEREST COST VALUE
--------- ----- ------- --------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Liberte' Investors ("Liberte' ")........... 2.41% $169 $ 675 2.41% $169 $ 525
==== ==== ==== ====
</TABLE>
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and classified its investments as securities available-for-sale.
Accordingly, as of December 31, 1995 and 1994, investment securities are carried
at fair value with the unrealized gain of $506,000 and $356,000, respectively,
presented as a separate component of stockholders' equity.
The income tax basis of the investment in marketable equity securities at
December 31, 1995 was $6,028,000.
NOTE G -- SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides information regarding supplemental cash and
noncash investing and financing activities:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Loan foreclosures, net of allowance for losses, added to real
estate properties............................................. $5,971 $6,806(1)
Loans made to facilitate sales of real estate owned............. 2,200 200
Unrealized gain on marketable equity securities................. 150 356
</TABLE>
- ---------------
(1) This includes the 22.22% minority participant's ownership of $1,512,000.
NOTE H -- REVERSE REPURCHASE AGREEMENT
The Company does not in the ordinary course of business take possession of
the securities which collateralize its reverse repurchase agreements (assets
purchased under agreements to resell). The Company has controls which consist of
the right to demand additional collateral or return of these invested funds at
anytime the collateral value is less than the invested funds plus any accrued
earnings thereon. The Company conducts these transactions on a short term basis
with Deposit Guaranty National Bank with which it has a normal business
relationship. At December 31, 1995, the Company had $645,000 invested in reverse
repurchase agreements which can be withdrawn at any time without penalty.
NOTE I -- INCENTIVE COMPENSATION PLAN
In December 1993, the Board of Directors approved the LNH REIT, Inc.
Incentive Compensation Plan, ("Incentive Plan") which was effective as of
October 1, 1993. Under the Incentive Plan, 80,000 incentive compensation units
were granted to officers of the Company. An incentive compensation unit is a
right to receive an amount equal to the dividend paid on a specified number of
shares and is payable to the grantee in cash as the corresponding payments are
made to shareholders. At December 31, 1994, 80,000 incentive compensation units
were outstanding under the incentive plan and there were no additional units
available for grant. Compensation expense related to the Incentive Plan for the
years ended December 31, 1995 and 1994 was $34,000 and $37,000, respectively.
F-36
<PAGE> 162
LNH REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- NEWLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying value amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will adopt
Statement 121 in the first quarter of 1996 and, based on current circumstances,
does not believe the effect of adoption will be material.
NOTE K -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table represents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1995. FASB
Statement No. 107, Disclosures About Fair Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1995
------------------
CARRYING FAIR
AMOUNT VALUE
-------- -----
(IN THOUSANDS)
<S> <C> <C>
Financial Assets
Cash and cash equivalents................................ 1,016 1,016
Investment in marketable securities...................... 675 675
Mortgage loans........................................... 6,860 6,899
</TABLE>
The carrying amounts shown in the table are included in the balance sheet
under the indicated captions, net of related allowance for losses.
The following methods and assumptions were used to estimate fair value of
each class of financial instruments.
Cash and cash equivalents: The carrying amounts approximate fair value
because of the short maturity of those instruments.
Mortgage loans: The fair value of performing mortgage loans is estimated
using discounted cash flows at current interest rates for loans with similar
terms and maturities. The fair value for nonperforming loans is based on the
underlying estimated collateral value.
Investment in marketable securities: The fair value of the equity
investment is based on quoted market prices at the reporting date for the
investment. Because this investment is classified as a security available-for-
sale, it is carried at fair value with the unrealized gain of $506,000 presented
as a separate component of stockholders' equity.
NOTE L -- PROPOSED MERGER
On September 6, 1995 (amended on December 6, 1995), LNH REIT, Inc. and
EastGroup Properties announced that the Special Committees of the Boards of each
company had agreed in principle to a merger between LNH and EastGroup. The
Company's shareholders would receive shares of EastGroup with a value of $8.10
for each LNH share. The number of EastGroup shares that LNH shareholders receive
would be determined by dividing the value $8.10 by the average trading price of
EastGroup shares during the 10 trading days immediately prior to the fifth
trading day prior to effective date of the merger. EastGroup presently owns
23.4% of LNH. The merger is subject to several conditions, including shareholder
approval, receipt of a satisfactory fairness opinion by LNH and registration of
the EastGroup shares to be issued in the merger with the Securities and Exchange
Commission. As a result of the transaction, EastGroup will succeed to the
operations and net assets of the Company and the Company will cease to be a
reporting company under the Securities Exchange Act of 1934, as amended.
F-37
<PAGE> 163
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
COPLEY PROPERTIES, INC.
AND
EASTGROUP PROPERTIES
DATED AS OF FEBRUARY 12, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 164
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1. THE MERGER.............................................................. A-1
1.1 The Merger.............................................................. A-1
1.2 The Closing............................................................. A-1
1.3 Effective Time.......................................................... A-1
ARTICLE 2. CHARTER AND TRUSTEES REGULATIONS OF THE SURVIVING CORPORATION........... A-2
2.1 Charter................................................................. A-2
2.2 Trustees Regulations.................................................... A-2
ARTICLE 3. TRUSTEES AND OFFICERS OF THE SURVIVING CORPORATION...................... A-2
3.1 Trustees................................................................ A-2
3.2 Officers................................................................ A-2
ARTICLE 4. EXCHANGE OF STOCK....................................................... A-2
4.1 Conversion and Redemption of Stock...................................... A-2
4.2 Exchange of Certificates Representing Copley Stock...................... A-3
4.3 Return of Exchange Fund................................................. A-4
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF COPLEY................................ A-4
5.1 Existence; Good Standing; Authority; Compliance With Law................ A-4
5.2 Authorization, Validity and Effect of Agreements........................ A-5
5.3 Capitalization.......................................................... A-5
5.4 Subsidiaries............................................................ A-6
5.5 Other Interests......................................................... A-6
5.6 No Violation............................................................ A-6
5.7 SEC Documents........................................................... A-7
5.8 Litigation.............................................................. A-7
5.9 Absence of Certain Changes.............................................. A-7
5.10 Taxes................................................................... A-8
5.11 Books and Records....................................................... A-9
5.12 Properties.............................................................. A-9
5.13 Environmental Matters................................................... A-10
5.14 No Brokers.............................................................. A-10
5.15 Opinion of Financial Advisor............................................ A-11
5.16 Related Party Transactions.............................................. A-11
5.17 Contracts and Commitments............................................... A-11
5.18 Definition of Copley's Knowledge........................................ A-11
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER................................. A-11
6.1 Existence; Good Standing; Authority; Compliance With Law................ A-11
6.2 Authorization, Validity and Effect of Agreements........................ A-12
6.3 Capitalization.......................................................... A-12
6.4 Subsidiaries............................................................ A-13
6.5 Other Interests......................................................... A-13
6.6 No Violation............................................................ A-13
6.7 SEC Documents........................................................... A-13
6.8 Litigation.............................................................. A-14
6.9 Absence of Certain Changes.............................................. A-14
6.10 Taxes................................................................... A-14
</TABLE>
(i)
<PAGE> 165
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.11 Books and Records....................................................... A-15
6.12 Properties.............................................................. A-15
6.13 Environmental Matters................................................... A-16
6.14 No Brokers.............................................................. A-16
6.15 Opinion of Financial Advisor............................................ A-16
6.16 Copley Stock Ownership.................................................. A-17
6.17 Related Party Transactions.............................................. A-17
6.18 Contracts and Commitments............................................... A-17
6.19 Buyer Stock............................................................. A-17
6.20 Convertible Securities.................................................. A-17
6.21 Definition of Buyer's Knowledge......................................... A-17
ARTICLE 7. COVENANTS............................................................... A-17
7.1 Acquisition Proposals................................................... A-17
7.2 Conduct of Businesses................................................... A-18
7.3 Meetings of Stockholders................................................ A-21
7.4 Filings; Other Action................................................... A-21
7.5 Inspection of Records................................................... A-22
7.6 Publicity............................................................... A-22
7.7 Registration Statement.................................................. A-22
7.8 Listing Application..................................................... A-23
7.9 Further Action.......................................................... A-23
7.10 Affiliates of Copley.................................................... A-23
7.11 Expenses................................................................ A-23
7.12 Indemnification and Insurance........................................... A-23
7.13 Reorganization.......................................................... A-24
7.14 Redemption of Rights.................................................... A-24
7.15 Payment of Advisory Fee................................................. A-25
7.16 REIT Status............................................................. A-25
ARTICLE 8. CONDITIONS.............................................................. A-25
8.1 Conditions to Each Party's Obligation to Effect the Merger.............. A-25
8.2 Conditions to Obligations of Copley to Effect the Merger................ A-26
8.3 Conditions to Obligation of Buyer to Effect the Merger.................. A-26
ARTICLE 9. TERMINATION............................................................. A-27
9.1 Termination............................................................. A-27
9.2 Effect of Termination................................................... A-28
9.3 Payment of Termination Amount or Expenses............................... A-29
9.4 Extension; Waiver....................................................... A-30
ARTICLE 10. GENERAL PROVISIONS...................................................... A-30
10.1 Nonsurvival of Representations, Warranties and Agreements............... A-30
10.2 Notices................................................................. A-30
10.3 Assignment; Binding Effect; Benefit..................................... A-31
10.4 Entire Agreement........................................................ A-31
10.5 Confidentiality......................................................... A-31
10.6 Amendment............................................................... A-31
10.7 Governing Law........................................................... A-31
10.8 Counterparts............................................................ A-31
10.9 Headings................................................................ A-31
</TABLE>
(ii)
<PAGE> 166
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
10.10 Waivers................................................................. A-32
10.11 Incorporation........................................................... A-32
10.12 Severability............................................................ A-32
10.13 Interpretation and Certain Definitions.................................. A-32
10.14 Schedules............................................................... A-32
</TABLE>
EXHIBIT A -- Bermant/UBC Purchase and Sale Agreement
EXHIBIT B -- Form of Affiliate Letter
EXHIBIT C -- Quarterly Dividend Dates
EXHIBIT D -- Proxy Agreement
(iii)
<PAGE> 167
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of February 12, 1996 between Copley Properties, Inc., a Delaware
corporation which operates as a real estate investment trust ("Copley"), and
EastGroup Properties, a Maryland real estate investment trust ("Buyer").
RECITALS
A. The Board of Directors of Copley and the Board of Trustees of Buyer each
have determined that a business combination between Copley and Buyer is in the
best interests of their respective companies and stockholders and presents an
opportunity for their respective companies to achieve long-term strategic and
financial benefits, and accordingly have agreed to effect the merger provided
for herein upon the terms and subject to the conditions set forth herein.
B. It is intended that the merger provided for herein, for federal income
tax purposes, shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and for
financial accounting purposes shall be accounted for as a "purchase."
C. Copley and Buyer have each received a fairness opinion from their
respective financial advisors relating to the transactions contemplated hereby
as more fully described herein.
D. Copley and Buyer desire to make certain representations, warranties and
agreements in connection with the merger.
E. As a condition to the willingness of Copley to enter into this
Agreement, the principal stockholders of Buyer (the "Principal Stockholders")
have entered into a Proxy Agreement, dated as of the date hereof, with Copley
substantially in the form of Exhibit D attached hereto (the "Proxy Agreement"),
pursuant to which each of the Principal Stockholders has granted to Copley an
irrevocable proxy to vote his or its shares of Buyer Stock (as defined below) in
favor of the merger and all other actions necessary to consummate the merger,
upon the terms and subject to the conditions set forth in the Proxy Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1. THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.3 hereof), Copley shall be merged
with and into Buyer in accordance with this Agreement and the separate corporate
existence of Copley shall thereupon cease (the "Merger"). Buyer shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation"). The Merger shall have the effects specified in Section
259 of the Delaware General Corporation Law (the "DGCL"), Section 3-114 of the
Maryland General Corporation Law (the "MGCL") and Section 8-501.1 of the
Maryland Real Estate Investment Trust Law ("MDREIT Law").
1.2 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place (a) at the offices of
Hale and Dorr in Boston, Massachusetts, at 9:00 a.m., local time, on the first
business day immediately following the day on which the last of the conditions
set forth in Article 8 shall be fulfilled or waived in accordance herewith or
(b) at such other time, date or place as the parties hereto may agree. The date
on which the Closing occurs is hereinafter referred to as the "Closing Date."
1.3 Effective Time. If all the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, the parties
hereto shall cause Articles of Merger satisfying the requirements of the MGCL
and MDREIT Law to be properly executed, verified and delivered for filing in
accordance with the MGCL and MDREIT Law on the Closing Date. The Merger shall
become effective upon the acceptance for record of the Articles of Merger by the
State Department of Assessments and Taxation of Maryland in accordance with the
MGCL and
<PAGE> 168
MDREIT Law or at such later time which the parties hereto shall have agreed upon
and designated in such filing in accordance with applicable law as the effective
time of the Merger (the "Effective Time").
ARTICLE 2. CHARTER AND TRUSTEES REGULATIONS OF THE SURVIVING CORPORATION
2.1 Charter. The Restated Declaration of Trust, as amended (the
"Declaration of Trust") of Buyer in effect immediately prior to the Effective
Time shall be the Declaration of Trust of the Surviving Corporation, until duly
amended in accordance with applicable law.
2.2 Trustees Regulations. The Trustees Regulations of Buyer in effect
immediately prior to the Effective Time shall be the Trustees Regulations of the
Surviving Corporation, until duly amended in accordance with applicable law.
ARTICLE 3. TRUSTEES AND OFFICERS OF THE SURVIVING CORPORATION
3.1 Trustees. The trustees of Buyer immediately prior to the Effective
Time, shall be the trustees of the Surviving Corporation as of the Effective
Time.
3.2 Officers. The officers of Buyer immediately prior to the Effective
Time shall be the officers of the Surviving Corporation as of the Effective
Time.
ARTICLE 4. EXCHANGE OF STOCK
4.1 Conversion and Redemption of Stock.
(a) At the Effective Time, each share of beneficial interest, par
value $1.00 per share, of Buyer ("Buyer Stock") outstanding immediately
prior to the Effective Time shall remain outstanding and shall represent
one share of beneficial interest, par value $1.00 per share, of the
Surviving Corporation.
(b) At the Effective Time, the outstanding share of Class A common
stock, $1.00 par value per share, of Copley (the "Copley Class A Stock")
issued and outstanding immediately prior to the Effective Time shall be
redeemed for a price of $1.00.
(c) At the Effective Time, each share of common stock, par value $1.00
per share, of Copley (the "Copley Stock") issued and outstanding
immediately prior to the Effective Time (other than those shares of Copley
Stock to be canceled pursuant to Section 4.1(f)) shall, by virtue of the
Merger and without any action on the part of Copley, Buyer or the holders
of any of the securities of any of these corporations, be converted into a
number of shares of Buyer Stock equal to a fraction, the numerator of which
is the Share Value and the denominator of which is the Buyer Stock Price
(collectively, the "Stock Consideration"). The "Buyer Stock Price" means an
amount equal to the average of the closing sales prices of Buyer Stock on
the New York Stock Exchange on the twenty trading days immediately
preceding the fifth trading day prior to the date of the Effective Time;
provided, that if such average closing price as calculated in accordance
with this sentence (i) is less than $20.25, the Buyer Stock Price shall be
deemed to equal $20.25 or (ii) is greater than $23.00, the Buyer Stock
Price shall be deemed to equal $23.00. Notwithstanding the foregoing, if
the average closing sales prices of Buyer Stock on the New York Stock
Exchange on the twenty (20) trading days immediately preceding the fifth
trading day prior to either (A) the date on which the Form S-4 (as
hereinafter defined) is declared effective by the Securities and Exchange
Commission or (B) the date on which the meeting of Copley stockholders is
to be convened pursuant to Section 7.3 hereof, is equal to or less than
$18.25, Copley shall have the right, waivable by it, to terminate this
Agreement pursuant to Section 9.1(f) without any liability on the part of
Copley. The "Share Value" shall equal (subject to the adjustments as
described in the next succeeding sentences and as described in Section
7.16) $15.60; provided, however, that if prior to the Effective Time Copley
shall have conveyed all of its right, title and interest in and to its
partnership interest (the "UBC Interest") in University Business Center
Associates, a California general partnership, to JCB Limited, or an
affiliate or nominee thereof ("Bermant"), pursuant to a Purchase and Sale
Agreement in substantially the form of Exhibit A attached hereto (as the
same may be amended from time to time, the "Bermant/UBC Agreement"), then
the Share Value shall equal $12.00. In the event the Summer Hill
A-2
<PAGE> 169
Option (as defined in Section 7.1 hereof) is exercised and Copley conveys
the real property subject to such option to Summer Hill Ltd. prior to the
Effective Date in accordance with the terms of such option, the Share Value
shall be reduced by the quotient equal to (x) $1,060,000 divided by (y) the
total number of shares of Copley Stock issued and outstanding immediately
prior to the Effective Time.
(d) Buyer acknowledges and agrees that the value of the UBC Interest
is $12,903,660 and that Copley may disclose such valuation to Bermant in
accordance with the provisions of that certain Second Amended and Restated
Joint Venture Agreement, dated as of November 1, 1993 and amended as of
January 19, 1996, between Copley and Bermant (the "Joint Venture
Agreement"). Immediately following the execution of this Agreement, Copley
shall deliver to Bermant written notice of the terms of this Agreement in
accordance with the Joint Venture Agreement.
(e) As a result of the Merger and without any action on the part of
the holders thereof, all shares of Copley Stock shall cease to be
outstanding, shall be canceled and retired and shall cease to exist and
each holder of a certificate (a "Certificate") representing any shares of
Copley Stock shall thereafter cease to have any rights with respect to such
shares of Copley Stock, except the right to receive, without interest,
shares of Buyer Stock, dividends payable in accordance with Section 4.2(c)
and cash in lieu of fractional shares of Buyer Stock in accordance with
Section 4.2(e) upon the surrender of such Certificate.
(f) Each share of Copley Stock issued and held in Copley's treasury
and each share of Copley Stock held by Buyer or any of the Buyer
Subsidiaries immediately prior to the Effective Time, if any, by virtue of
the Merger, shall cease to be outstanding, shall be canceled and retired
and shall cease to exist and no payment of any consideration shall be made
with respect thereto.
4.2 Exchange of Certificates Representing Copley Stock.
(a) As of the Effective Time, Buyer shall deposit, or shall cause to
be deposited, with an exchange agent selected by Buyer on or prior to the
Effective Time (the "Exchange Agent"), for the benefit of the holders of
shares of Copley Stock, for exchange in accordance with this Article 4,
certificates representing the shares of Buyer Stock and the cash in lieu of
fractional shares (such cash and certificates for shares of Buyer Stock
being hereinafter referred to as the "Exchange Fund") to be issued pursuant
to Section 4.1 and paid pursuant to this Section 4.2, respectively, in
exchange for outstanding shares of Copley Stock.
(b) Promptly after the Effective Time, Buyer shall cause the Exchange
Agent to mail to each holder of record of a Certificate or Certificates (i)
a letter of transmittal which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Buyer may reasonably specify
and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Buyer
Stock and cash in lieu of fractional shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor (x) a certificate representing the number of
whole shares of Buyer Stock to which such holder shall be entitled, and (y)
a check representing the amount of cash in lieu of fractional shares, if
any, plus the amount of any dividends or distributions, if any, pursuant to
paragraph (c) below, after giving effect to any required withholding tax,
and the Certificate so surrendered shall forthwith be canceled. No interest
will be paid or accrued on the cash in lieu of fractional shares or on the
dividend or distribution, if any, payable to holders of Certificates,
pursuant to this Section 4.2. In the event of a transfer of ownership of
Copley Stock which is not registered in the transfer records of Copley, a
Certificate representing the proper number of shares of Buyer Stock,
together with a check for the cash to be paid in lieu of fractional shares
plus, to the extent applicable, the amount of any dividend or distribution,
if any, payable pursuant to paragraph (c) below, may be issued to such a
transferee if the Certificate representing shares of such Copley Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
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(c) Notwithstanding any other provisions of this Agreement, no
dividends or other distributions on Buyer Stock shall be paid with respect
to any shares of Copley Stock represented by a Certificate until such
Certificate is surrendered for exchange as provided herein; provided,
however, that subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid by the Surviving Corporation
to the holder of the certificates representing whole shares of Buyer Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such
whole shares of Buyer Stock and not paid, less the amount of any
withholding taxes which may be required thereon, and (ii) at the
appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole
shares of Buyer Stock, less the amount of any withholding taxes which may
be required thereon.
(d) At and after the Effective Time, there shall be no transfers on
the stock transfer books of Copley of the shares of Copley Stock which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged for certificates for shares of Buyer
Stock, dividends and cash in lieu of fractional shares, if any, in
accordance with this Section 4.2. Certificates surrendered for exchange by
any person constituting an "affiliate" of Copley for purposes of Rule 145,
as such rule may be amended from time to time ("Rule 145"), of the rules
and regulations promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), shall not be exchanged until Buyer has received an
Affiliate Letter in the form of Exhibit B attached hereto, from such person
as provided in Section 7.10.
(e) No fractional shares of Buyer Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Buyer Stock
pursuant to this Agreement, each holder of Copley Stock upon surrender of a
Certificate for exchange shall be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (i) the
Buyer Stock Price by (ii) the fraction of a share of Buyer Stock which such
holder would otherwise be entitled to receive under this Article 4.
4.3 Return of Exchange Fund. Any portion of the Exchange Fund (including
the proceeds of any investments thereof and any shares of Buyer Stock) that
remains unclaimed by the former stockholders of Copley one year after the
Effective Time shall be delivered to the Surviving Corporation. Any former
stockholders of Copley who have not theretofore complied with this Article 4
shall thereafter look only to the Surviving Corporation for payment of their
shares of Buyer Stock and cash in lieu of fractional shares (plus dividends and
distributions to the extent set forth in Section 4.2(c), if any), as determined
pursuant to this Agreement, without any interest thereon. None of Buyer, Copley,
the Exchange Agent or any other person shall be liable to any former holder of
shares of Copley Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws. In the event
any Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving Corporation, the posting
by such person of a bond in such reasonable amount as the Surviving Corporation
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent or the Surviving Corporation
will issue in exchange for such lost, stolen or destroyed Certificate the shares
of Buyer Stock and cash in lieu of fractional shares (and to the extent
applicable, dividends and distributions payable pursuant to Section 4.2(c)).
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF COPLEY
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Buyer, which shall refer to the relevant Sections of this
Agreement (the "Copley Disclosure Letter"), Copley represents and warrants to
Buyer as follows:
5.1 Existence; Good Standing; Authority; Compliance With Law.
(a) Copley is a corporation duly organized, validly existing and in
good standing under the laws of Delaware. Copley is duly licensed or
qualified to do business as a foreign corporation and is in good
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standing under the laws of any other state of the United States in which
the character of the properties owned or leased by it therein or in which
the transaction of its business makes such qualification necessary, except
where the failure to be so licensed or qualified would not have a material
adverse effect on the business, results of operations or financial
condition of Copley and the Copley Subsidiaries (as defined below) taken as
a whole (a "Copley Material Adverse Effect"). Copley has all requisite
corporate power and authority to own, operate, lease and encumber its
properties and carry on its business as now conducted.
(b) Each of the Copley Subsidiaries is a corporation or partnership
duly incorporated or organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation or organization, has the
corporate or partnership power and authority to own its properties and to
carry on its business as it is now being conducted, and is duly qualified
to do business and is in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so
qualified or to be in good standing would not have a Copley Material
Adverse Effect.
(c) Except as set forth in Section 5.1(c) of the Copley Disclosure
Letter, to the best knowledge of Copley, neither Copley nor any of the
Copley Subsidiaries is in violation of any order of any court, governmental
authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Copley or any Copley Subsidiary or
any of their respective properties or assets is subject, where such
violation would have a Copley Material Adverse Effect.
(d) Copies of the Certificate of Incorporation or other charter
documents, Bylaws, organizational documents and partnership and joint
venture agreements (and in each such case, all amendments thereto) of
Copley and each of the Copley Subsidiaries are listed in Section 5.1 of the
Copley Disclosure Letter, and the copies of such documents, which have
previously been delivered or made available to Buyer and its counsel, are
true and correct. For the purposes of this Agreement, the term "Copley
Subsidiary" shall include any of the entities listed under such heading in
Section 5.4 of the Copley Disclosure Letter.
5.2 Authorization, Validity and Effect of Agreements. Each of Copley and
the Copley Subsidiaries has the requisite power and authority to enter into the
transactions contemplated hereby and to execute and deliver this Agreement. The
Board of Directors of Copley has approved this Agreement, the Merger, and the
transactions contemplated by this Agreement and has agreed to recommend that the
holders of Copley Stock adopt and approve this Agreement, the Merger, and the
transactions contemplated by this Agreement at the Copley stockholders' meeting
which will be held in accordance with the provisions of Section 7.3 hereof. In
connection with the foregoing, the Board of Directors of Copley has taken such
actions and votes as are necessary on its part to render the provisions of
Section 203 of the DGCL, Article Ninth of Copley's Restated Certificate of
Incorporation ("Copley's Certificate"), and the Rights Agreement, dated as of
June 28, 1990, between Copley and State Street Bank and Trust Company, as
amended (the "Rights Agreement"), inapplicable to this Agreement, the Merger,
and the transactions contemplated by this Agreement. As of the date hereof, all
of the directors and executive officers of Copley have indicated that they
presently intend to vote all shares of Copley Stock which they own to approve
this Agreement, the Merger, and the transactions contemplated by this Agreement
at the Copley stockholders meeting which will be held in accordance with the
provisions of Section 7.3. Subject only to the approval of this Agreement and
the transactions contemplated hereby by the holders of a majority of the
outstanding shares of Copley Stock, the execution by Copley of this Agreement
and the consummation of the transactions contemplated by this Agreement have
been duly authorized by all requisite action on the part of Copley. This
Agreement constitutes the valid and legally binding obligations of Copley,
enforceable against Copley in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
5.3 Capitalization. The authorized capital stock of Copley consists of
20,000,000 shares of Copley Stock and one (1) share of Copley Class A Stock. As
of the date hereof, there are 3,584,350 shares of Copley Stock issued and
outstanding and one share of Copley Class A Stock issued and outstanding. All
such shares
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of Copley Stock are duly authorized, validly issued, fully paid, nonassessable
and free of preemptive rights. Except as set forth in Section 5.3 of the Copley
Disclosure Letter, Copley has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of Copley on any matter. There are not at the date of this
Agreement any existing options, warrants, calls, subscriptions, convertible
securities, or other rights, agreements or commitments which obligate Copley to
issue, transfer or sell any shares of capital stock of Copley except for the
provisions of Copley's Certificate relating to the Copley Class A Stock and the
rights issued pursuant to the Rights Agreement. Except as set forth in Section
5.3 of the Copley Disclosure Letter, there are no agreements or understandings
to which Copley or any Copley Subsidiary is a party with respect to the voting
of any shares of capital stock of Copley or which restrict the transfer of any
such shares, nor does Copley have knowledge of any such agreements or
understandings with respect to the voting of any such shares or which restrict
the transfer of any such shares other than those set forth in Copley's
Certificate with respect to the maintenance of Copley as a real estate
investment trust ("REIT"). Except as set forth in Section 5.3 of the Copley
Disclosure Letter, there are no outstanding contractual obligations of Copley or
any Copley Subsidiary to repurchase, redeem or otherwise acquire any shares of
capital stock, partnership interests or any other securities of Copley or any
Copley Subsidiary. Except as set forth in Section 5.3 of the Copley Disclosure
Letter, neither Copley nor any Copley Subsidiary is under any obligation,
contingent or otherwise, by reason of any agreement to register any of their
securities under the Securities Act.
5.4 Subsidiaries. Except as set forth in Section 5.4 of the Copley
Disclosure Letter, Copley owns directly or indirectly each of the outstanding
shares of capital stock or all of the partnership or other equity interests of
each of the Copley Subsidiaries. Each of the outstanding shares of capital stock
in each of the Copley Subsidiaries having corporate form is duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section 5.4
of the Copley Disclosure Letter, each of the outstanding shares of capital stock
of, or partnership or other equity interests in, each of the Copley Subsidiaries
is owned, directly or indirectly, by Copley free and clear of all liens,
pledges, security interests, claims or other encumbrances. The following
information for each Copley Subsidiary as of February 12, 1996 is set forth in
Section 5.4 of the Copley Disclosure Letter: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or share
capital or partnership or other interests; (iii) the name of each stockholder or
owner of a partnership or other equity interest and the number of issued and
outstanding shares of capital stock or share capital or percentage ownership for
non-corporate entities held by it and (iv) the names of the general partners, if
applicable.
5.5 Other Interests. Except as set forth in Sections 5.4 and 5.5 of the
Copley Disclosure Letter, neither Copley nor any Copley Subsidiary owns directly
or indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or other entity (other
than investments in short-term investment securities).
5.6 No Violation. Except as set forth in Section 5.6 of the Copley
Disclosure Letter, neither the execution and delivery by Copley of this
Agreement nor the consummation by Copley of the transactions contemplated by
this Agreement in accordance with its terms, will: (i) conflict with or result
in a breach of any provisions of Copley's Certificate, the Bylaws,
organizational documents, partnership agreements or joint venture agreements of
Copley or any Copley Subsidiary; (ii) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Copley or the
Copley Subsidiaries under, or result in being declared void, voidable or without
further binding effect, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which Copley or any of the Copley Subsidiaries is a party, or by which Copley or
any of the Copley Subsidiaries or any of their properties is bound or affected,
except for any of the foregoing matters which, individually or in the aggregate,
would not have a Copley Material Adverse Effect; or (iii) other than the filings
provided for in Article 1 of this Agreement, required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the Securities
Exchange Act of 1934,
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as amended (the "Exchange Act"), the Securities Act or applicable state
securities and "Blue Sky" laws (collectively, the "Regulatory Filings"), require
any consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority, except where the
failure to obtain any such consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority would not have a Copley Material Adverse Effect.
5.7 SEC Documents. Copley has filed all required forms, reports and
documents with the Securities and Exchange Commission ("SEC") since December 31,
1994 (collectively, the "Copley SEC Reports") all of which were prepared in
accordance with the applicable requirements of the Exchange Act and the
Securities Act. The Copley SEC Reports were filed with the SEC in a timely
manner and constitute all forms, reports and documents required to be filed by
Copley since December 31, 1994 under the Securities Act, the Exchange Act and
the rules and regulations promulgated thereunder (the "Securities Laws"). As of
their respective dates, the Copley SEC Reports (i) complied as to form in all
material respects with the applicable requirements of the Securities Laws and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of Copley included in or
incorporated by reference into the Copley SEC Reports (including the related
notes and schedules) fairly presents the consolidated financial position of
Copley and the Copley Subsidiaries as of its date and each of the consolidated
statements of income, retained earnings and cash flows of Copley included in or
incorporated by reference into the Copley SEC Reports (including any related
notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of Copley and the Copley
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, as permitted by Form 10-Q pursuant to Section 13 or 15(d) of the
Exchange Act.
5.8 Litigation. Except as set forth in Section 5.8 of the Copley
Disclosure Letter, there are (i) no continuing orders, injunctions or decrees of
any court, arbitrator or governmental authority to which Copley or any Copley
Subsidiary is a party or by which any of its properties or assets are bound, or,
to the reasonable best knowledge of Copley, to which any person who is now, or
has been at any time prior to the date hereof, a director, officer, employee or
agent of Copley or any Copley Subsidiary acting in such capacity is a party, and
(ii) no actions, suits or proceedings pending against Copley or any Copley
Subsidiary or, to the reasonable best knowledge of Copley, threatened against
Copley or any Copley Subsidiary or against any person who is now, or has been at
any time prior to the date hereof, a director, officer, employee or agent of
Copley or any Copley Subsidiary acting in such capacity, at law or in equity, or
before or by any federal or state commission, board, bureau, agency or
instrumentality, that in the case of clause (i) or (ii) are reasonably likely,
individually or in the aggregate, to have a Copley Material Adverse Effect.
There are no written, nor to Copley's knowledge threatened, claims made against
Copley or any Copley Subsidiary by any existing or former joint venture partner
or other partner of Copley or any Copley Subsidiary that are reasonably likely,
individually or in the aggregate, to have a Copley Material Adverse Effect.
5.9 Absence of Certain Changes. Except as disclosed in the Copley SEC
Reports filed with the SEC prior to the date hereof or as set forth in Section
5.9 of the Copley Disclosure Letter, since December 31, 1994, Copley and the
Copley Subsidiaries have conducted their business only in the ordinary course of
such business and there has not been (i) any Copley Material Adverse Effect;
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to the Copley Stock, except dividends of $0.25 per
share paid on April 11, 1995, and $0.27 per share paid on July 11, 1995, October
10, 1995 and December 26, 1995; (iii) any material commitment, contractual
obligation, borrowing, capital expenditure or transaction (each, a "Commitment")
entered into by Copley or any of the Copley Subsidiaries, outside the ordinary
course of business except for Commitments for expenses of attorneys, accountants
and investment bankers incurred in connection with the Merger; or (iv) any
material change in Copley's accounting principles, practices or methods.
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5.10 Taxes. Except as set forth in Section 5.10 of the Copley Disclosure
Letter:
(a) Copley and each of the Copley Subsidiaries has paid, caused to be
paid or accrued all federal, state, local, foreign, and other taxes,
including without limitation, income taxes, estimated taxes, alternative
minimum taxes, excise taxes, sales taxes, use taxes, value-added taxes,
gross receipts taxes, franchise taxes, capital stock taxes, employment and
payroll-related taxes, withholding taxes, stamp taxes, transfer taxes,
windfall profit taxes, property taxes and environmental taxes, whether or
not measured in whole or in part by net income, and all deficiencies, or
other additions to tax, interest, fines and penalties (collectively,
"Taxes"), required to be paid or accrued by it through the date hereof;
(b) Copley and each of the Copley Subsidiaries has timely filed all
federal, state, local and foreign tax returns required to be filed by any
of them through the date hereof, and all such returns completely and
accurately set forth the amount of any Taxes relating to the applicable
period;
(c) Copley and each Copley Subsidiary has withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or
other party;
(d) For its taxable year ended December 31, 1994 and at all times
thereafter up to and including the date hereof, Copley has qualified to be
treated as a REIT within the meaning of Sections 856-860 of the Code,
including, without limitation, the requirements of Sections 856 and 857 of
the Code. Copley has qualified as a REIT for every taxable year in which it
existed. For the periods described in the preceding sentence, Copley has
met all requirements necessary to be treated as a REIT for purposes of the
income tax provisions of those states in which Copley is subject to income
tax and which provide for the taxation of a REIT in a manner similar to the
treatment of REITs under Sections 856-860 of the Code;
(e) Neither the Internal Revenue Service ("IRS") nor any governmental
authority is now asserting by written notice to Copley or any Copley
Subsidiary or, to the knowledge of Copley, threatening to assert against
Copley or any Copley Subsidiary any deficiency or claim for additional
Taxes. There is no dispute or claim concerning any tax liability of Copley
or any Copley Subsidiary either claimed or raised in writing by the IRS.
There is no dispute or claim concerning any tax liability of a material
nature of Copley or any Copley Subsidiary either claimed or raised in
writing by any governmental authority other than the IRS, or, to the
knowledge of Copley, which may be claimed or raised by any federal or state
governmental authority. No written claim has ever been made by a taxing
authority in a jurisdiction where Copley does not file reports and returns
that Copley is or may be subject to taxation by that jurisdiction. To the
knowledge of Copley, there are no security interests on any of the assets
of Copley or any Copley Subsidiary that arose in connection with any
failure (or alleged failure) to pay any Taxes when due. Copley has never
entered into a closing agreement pursuant to Section 7121 of the Code;
(f) Copley has not received written notice of any audit of any tax
return filed by Copley, and Copley has not been notified in writing by any
tax authority that any such audit is contemplated or pending. Neither
Copley nor any of the Copley Subsidiaries has executed or filed with the
IRS or any other taxing authority any agreement now in effect extending the
period for assessment or collection of any income or other Taxes, and no
extension of time with respect to any date on which a tax return was or is
to be filed by Copley is in force. True, correct and complete copies of all
federal, state and local income or franchise tax returns filed by Copley
and each of the Copley Subsidiaries and all written communications relating
thereto have been delivered to Buyer or made available to representatives
of Buyer; and
(g) Each of the Copley Subsidiaries of which all the outstanding
capital stock is owned solely by Copley is a Qualified REIT Subsidiary as
defined in Section 856(i) of the Code. Except as set forth in Section 5.10
of the Copley Disclosure Letter, the Copley Subsidiaries listed as
partnerships in Section 5.4 of the Copley Disclosure Letter are, and have
been at all times, properly classified as partnerships for federal income
tax purposes and have not been classified as publicly-traded partnerships
for federal income tax purposes.
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5.11 Books and Records.
(a) The books of account and other financial records of Copley and
each of the Copley Subsidiaries are true, complete and correct in all
material respects, have been maintained in accordance with good business
practices, and are accurately reflected in all material respects in the
financial statements included in the Copley SEC Reports.
(b) The minute books and other records of Copley and each of the
Copley Subsidiaries have been, or will be prior to the Closing, made
available to Buyer, contain in all material respects accurate records of
all meetings and accurately reflect in all material respects all other
corporate action of the stockholders and directors and any committees of
the Board of Directors of Copley and each of the Copley Subsidiaries and
all actions of the partners of each of the Copley Subsidiaries.
5.12 Properties. All of the real estate properties owned by Copley and
each of the Copley Subsidiaries (the "Copley Properties") are set forth in
Section 5.12 of the Copley Disclosure Letter. Copley has made available to Buyer
for inspection the title reports ("Title Reports") and surveys ("Surveys")
relating to the Copley Properties listed in Section 5.12 of the Copley
Disclosure Letter. Copley is not aware of any encumbrance to title to the Copley
Properties or any survey matter affecting the Copley Properties other than (i)
matters listed in the Title Reports, (ii) matters shown on the Surveys, (iii)
ordinances and regulations, including zoning ordinances and building codes,
affecting building use or occupancy, (iv) mechanics', carriers', workmen's liens
or encumbrances which are the responsibility of tenants under leases, or which
otherwise do not have a material adverse effect on the value of the Copley
Properties as a whole, (v) the title insurance policies referred to in the next
sentence, (vi) new Leases permitted under Section 7.2(e) hereof and (vii)
matters disclosed in Section 5.12 of the Copley Disclosure Letter. Section 5.12
of the Copley Disclosure Letter sets forth all of the title insurance policies
of Copley or the applicable Copley Subsidiary relating to the Copley Properties
and such policies are, at the date hereof, in full force and effect and no
claims have been made against any such policies. To the best knowledge of Copley
(i) except as set forth in Section 5.12 of the Copley Disclosure Letter, Copley
has obtained all material certificates, permits and licenses from any
governmental authority having jurisdiction over any of the Copley Properties
which are not the responsibility of tenants and to Copley's knowledge no tenant
has failed to obtain any such certificate, permit or license, and all
agreements, easements and other rights which are necessary to permit the lawful
use and operation of all driveways, roads and other means of egress and ingress
to and from any of the Copley Properties, have been obtained and are in full
force and effect; (ii) the Copley Properties are in full compliance with all
governmental permits, licenses and certificates except where the failure to be
in compliance would not be reasonably likely to have a Copley Material Adverse
Effect; (iii) except as set forth in Section 5.1(c) of the Copley Disclosure
Letter, no written notice of any violation of any federal, state or municipal
law, ordinance, order, regulation or requirement affecting any portion of any of
the Copley Properties has been issued by any governmental authority which has
not been remedied or cured; (iv) there are no material structural defects
relating to any of the Copley Properties, except as set forth in the reports
referred to in Section 5.12 of the Copley Disclosure Letter; (v) the building
systems of each Copley Property are in working order in all material respects,
except as set forth in the reports referred to in Section 5.12 of the Copley
Disclosure Letter; (vi) except as set forth in Section 5.12 of the Copley
Disclosure Letter, there is no physical damage to any Copley Property in excess
of $50,000 for which there is no insurance in effect covering the full cost of
the restoration; or (vii) except as set forth in Section 5.12 of the Copley
Disclosure Letter, there is no current renovation or restoration or tenant
improvements to any Copley Property or any portion thereof, the cost of which
exceeds $50,000 individually. Except as disclosed in Section 5.1(c) of the
Copley Disclosure Letter, the use and occupancy of each of the Copley Properties
complies in all material respects with all applicable codes and zoning laws and
regulations, and Copley has no knowledge of any pending or threatened proceeding
or action that will in any manner affect the size of, use of, improvements on,
construction on, or access to any of the Copley Properties, with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such Copley Properties. Neither Copley nor any of the Copley
Subsidiaries has received any written notice to the effect that (A) any
betterment assessments have been levied against, or any condemnation or rezoning
proceedings are pending or threatened with respect to any of the Copley
Properties except as set forth in the Title Reports referred to in Section 5.12
of the Copley Disclosure Letter, or (B) any
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zoning, building or similar law, code, ordinance, order or regulation is or will
be violated by the continued maintenance, operation or use of any buildings or
other improvements on any of the Copley Properties or by the continued
maintenance, operation or use of the parking areas except as set forth in
Section 5.1(c) of the Copley Disclosure Letter.
5.13 Environmental Matters. Except as set forth in Section 5.13 of the
Copley Disclosure Letter and any environmental assessment or report listed
therein, to the best of Copley's actual knowledge: (i) no Hazardous Substances
or Hazardous Wastes have been or are being released into the environment,
discharged into the environment or disposed of from, at, on or under the Copley
Properties; (ii) no Hazardous Substances or Hazardous Wastes have been or are
being generated or treated at the Copley Properties or discharged from the
Copley Properties, except in compliance in all material respects with applicable
Laws (defined below); (iii) no Hazardous Wastes have been or are being stored
for more than 90 days or handled at or on the Copley Properties, except in
compliance in all material respects with applicable Laws; (iv) none of the
Copley Properties are listed on, and Copley has not received written or oral
notice that any of the Copley Properties are being considered for inclusion on,
the National Priorities List ("NPL"), the Comprehensive Environmental Response,
Compensation and Liability Information System ("CERCLIS"), or any State or local
listing of sites which are known or suspected to be contaminated by Hazardous
Substances or Hazardous Wastes; (v) there are no on-going violations of any
Federal, State or local law, statute, ordinance, rule or regulation ("Law") at
any Copley Properties which could result in contamination of the land, surface
water or groundwater from, at, on or under any such properties; and (vi) no
Federal, State or local governmental board, body, department or agency
(collectively "Government Agency") is investigating or has provided written
notice that it is considering investigating any alleged or potential release,
discharge, disposal or storage of Hazardous Substances or Hazardous Wastes at,
on, under or from any Copley Properties.
Except as disclosed in Section 5.13 of the Copley Disclosure Letter, with
respect to properties previously owned, leased or in the possession of Copley or
Copley Subsidiaries ("Copley Previous Properties"), Copley has no actual
knowledge that any of the activities or conditions described in clauses (i),
(ii) or (iii) as not having taken place or existed at the Copley Properties,
took place or existed at the Copley Previous Properties during the period when
Copley or the Copley Subsidiaries owned, leased or possessed the properties. In
addition, Copley has no actual knowledge that any of the Copley Previous
Properties are listed or are being considered for listing on any of the lists
described in clause (iv) or are being investigated or considered for
investigation as described in clause (vi).
As used in this Agreement, the term "Hazardous Substance" shall mean any
hazardous or toxic chemical, waste, byproduct, pollutant, contaminant, compound,
product or substance, including without limitation, asbestos, polychlorinated
biphenyls, petroleum (including crude oil or any fraction thereof), radioactive
substances and any material the manufacture, possession, presence, use,
generation, storage, transportation, treatment, release, disposal, discharge,
abatement, cleanup, removal, remediation or handling of which is prohibited,
controlled or regulated by any Government Agency pursuant to any Law relating to
protection of the environment or human health. The term "Hazardous Waste" shall
have the meaning set forth in the Resource Conservation and Recovery Act, as
amended, the regulations thereunder, and any similar or implementing State or
local law, statute, ordinance, rule or regulation.
Except as disclosed in Section 5.13 of the Copley Disclosure Letter, to the
best knowledge of Copley after due inquiry, neither Copley nor any Copley
Subsidiary has received any written notice from any Government Agency with
respect to alleged or potential liability relating in any way to Hazardous
Substances or Hazardous Wastes at, on, under or from any Copley Property or
Copley Previous Properties.
5.14 No Brokers. Neither Copley nor any of the Copley Subsidiaries has
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of such entity or Buyer to pay any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby, except that Copley has retained Morgan Stanley
& Co. Incorporated ("Morgan Stanley") to act as its financial advisor in
connection with the transactions contemplated by this Agreement. Other than
Buyer's arrangement with PaineWebber Incorporated ("PaineWebber"), Copley is not
aware of any claim for payment of any
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finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
5.15 Opinion of Financial Advisor. Copley has received the opinion of
Morgan Stanley, to the effect that, as of the date hereof, the Stock
Consideration is fair to the holders of Copley Stock from a financial point of
view, and has delivered a true and correct copy of such opinion to Buyer.
5.16 Related Party Transactions. Set forth in Section 5.16 of the Copley
Disclosure Letter is a list of all arrangements, agreements and contracts
entered into by Copley or any of the Copley Subsidiaries (which are or will be
in effect as of or after the date of this Agreement) with (i) any consultant
(excluding legal counsel, accountants and financial advisors) involving payments
in excess of $50,000 and which may not be terminated within 90 days by Copley or
the Copley Subsidiary which is a party thereto, (ii) any person who is an
officer, director or affiliate of Copley or any of the Copley Subsidiaries, any
relative of any of the foregoing or any entity of which any of the foregoing is
an affiliate or (iii) any person who acquired Copley Stock in a private
placement. All such documents are listed in Section 5.16 of the Copley
Disclosure Letter and the copies of such documents, which have previously been
provided or made available to Buyer and its counsel, are true and correct
copies.
5.17 Contracts and Commitments. Section 5.17 of the Copley Disclosure
Letter sets forth (i) all notes, debentures, bonds and other evidence of
indebtedness which are secured or collateralized by mortgages, deeds of trust or
other security interests in the Copley Properties or personal property of Copley
and each of the Copley Subsidiaries and (ii) each Commitment entered into by
Copley or any of the Copley Subsidiaries which may result in total payments by
or liability of Copley or any Copley Subsidiary in excess of $50,000 and which
may not be terminated within 90 days by Copley or the Copley Subsidiary which is
a party thereto. Copies of the foregoing are listed in Section 5.17 of the
Copley Disclosure Letter and the copies of such documents, which have previously
been provided or made available to Buyer and its counsel, are true and correct.
None of Copley or any of the Copley Subsidiaries has received any written notice
of a default that has not been cured under any of the documents described in
clause (i) above or is in default respecting any payment obligations thereunder
beyond any applicable grace periods except where such default would not have a
Copley Material Adverse Effect. To the best knowledge of Copley, neither Copley
nor any of the Copley Subsidiaries is in default with respect to any
obligations, which individually or in the aggregate are material, under any
joint venture agreements to which Copley or any of the Copley Subsidiaries is a
party.
5.18 Definition of Copley's Knowledge. As used in this Agreement, the
phrase "to the knowledge of Copley" or "to the best knowledge of Copley" or any
similar phrase means the actual, not the constructive or imputed, knowledge of
Mary Lentz, Steven E. Wheeler and Norman de Greve without any obligation on any
of their parts to make any independent investigation of the matters being
represented and warranted, or to make any inquiry of any other persons, or to
search or examine any files, records, books, correspondence and the like.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Copley, which shall refer to the relevant Sections of this
Agreement (the "Buyer Disclosure Letter"), Buyer represents and warrants to
Copley as follows:
6.1 Existence; Good Standing; Authority; Compliance With Law.
(a) Buyer is a REIT duly formed, validly existing and in good standing
under the laws of the State of Maryland. Buyer is duly licensed or
qualified to do business as a foreign corporation and is in good standing
under the laws of any other state of the United States in which the
character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except
where the failure to be so licensed or qualified would not have a material
adverse effect on the business, results of operations or financial
condition of Buyer and the Buyer Subsidiaries (as defined below) taken as a
whole (a "Buyer Material Adverse Effect"). Buyer has all requisite
corporate
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power and authority to own, operate, lease and encumber its properties and
carry on its business as now conducted.
(b) Each of the Buyer Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has the corporate power and authority to own
its properties and to carry on its business as it is now being conducted,
and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which
such failure to be so qualified or to be in good standing would not have a
Buyer Material Adverse Effect.
(c) To the best knowledge of Buyer, neither Buyer nor any Buyer
Subsidiary is in violation of any order of any court, governmental
authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Buyer or any Buyer Subsidiary or
any of their respective properties or assets is subject, where such
violation would have a Buyer Material Adverse Effect.
(d) Copies of the Declaration of Trust or other charter documents and
Trustees Regulations (and all amendments thereto) of Buyer and each of the
Buyer Subsidiaries are listed in Section 6.1 of the Buyer Disclosure
Letter, and the copies of such documents, which have previously been
delivered or made available to Copley or its counsel, are true and correct
copies. For purposes of this Agreement, the term "Buyer Subsidiary" shall
include any of the entities set forth under such heading in Section 6.4 of
the Buyer Disclosure Letter.
(e) Neither Buyer nor any of the Buyer Subsidiaries is an "interested
stockholder" of Copley for purposes of Section 203(c)(5) of the DGCL.
6.2 Authorization, Validity and Effect of Agreements. Buyer has the
requisite corporate power and authority to enter into the transactions
contemplated hereby and to execute and deliver this Agreement. The Board of
Trustees of Buyer has, by resolutions adopted by unanimous vote, approved this
Agreement, the Merger and the other transactions contemplated by this Agreement
and has agreed to recommend that the holders of Buyer Stock adopt and approve
this Agreement, the Merger, and the transactions contemplated by this Agreement
at the Buyer stockholders' meeting which will be held in accordance with the
provisions of Section 7.3 hereof. In connection with the foregoing, the Board of
Trustees of Buyer has taken such actions and votes as are necessary on its part
to render the provisions of the Control Share Acquisition Statute, the Business
Combination Statute and all other applicable takeover statutes of the MGCL and
any other applicable takeover statutes of any state, inapplicable to this
Agreement, the Merger, and the transactions contemplated by this Agreement. As
of the date hereof, all of the trustees and executive officers of Buyer have
indicated that they presently intend to vote all shares of Buyer Stock which
they own to approve this Agreement, the Merger, and the transactions
contemplated by this Agreement at the Buyer stockholders meeting which will be
held in accordance with the provisions of Section 7.3. Subject only to the
approval of this Agreement and the transactions contemplated hereby by the
holders of a majority of the outstanding shares of Buyer Stock, the execution by
Buyer of this Agreement, and the consummation of the transactions contemplated
by this Agreement have been duly authorized by all requisite corporate action on
the part of Buyer. This Agreement constitutes the valid and legally binding
obligations of Buyer, enforceable against Buyer in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
6.3 Capitalization. The authorized capital stock of Buyer consists of
10,000,000 shares of Buyer Stock. As of the date hereof, there are 4,231,656
shares of Buyer Stock issued and outstanding. All such issued and outstanding
shares of Buyer Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Buyer has no outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of Buyer on any matter. There are not at
the date of this Agreement any existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate Buyer to issue, transfer or sell any shares of Buyer Stock, other than
the issuance by Buyer of up to 222,750 shares of Buyer Stock upon the exercise
of stock options issued pursuant to Buyer's stock option plans. There are no
agreements or understandings to which Buyer or any Buyer Subsidiary is a party
with
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respect to the voting of any shares of Buyer Stock or which restrict the
transfer of any such shares, nor does Buyer have knowledge of any such
agreements or understandings with respect to the voting of any such shares or
which restrict the transfer of such shares.
6.4 Subsidiaries. Buyer owns all of the outstanding shares of capital
stock of each of the Buyer Subsidiaries. All of the outstanding shares of
capital stock of each of the Buyer Subsidiaries are duly authorized, validly
issued, fully paid and nonassessable, and are owned, by Buyer free and clear of
all liens, pledges, security interests, claims or other encumbrances. The
following information for each Buyer Subsidiary as of February 12, 1996 is set
forth in Section 6.4 of the Buyer Disclosure Letter: (i) its name and
jurisdiction of incorporation or organization and (ii) its authorized capital
stock.
6.5 Other Interests. Except for interests in the Buyer Subsidiaries,
neither Buyer nor any Buyer Subsidiary owns directly or indirectly any interest
or investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust or other entity (other than investments in short-term
investment securities).
6.6 No Violation. Except as set forth in Section 6.6 of the Buyer
Disclosure Letter, neither the execution and delivery by Buyer of this Agreement
nor the consummation by Buyer of the transactions contemplated by this Agreement
in accordance with its terms will: (i) conflict with or result in a breach of
any provisions of the Declaration of Trust, Trustees Regulations, organizational
documents, partnership agreements or joint venture agreements of Buyer or any
Buyer Subsidiary; (ii) result in a breach or violation of, a default under, or
the triggering of any payment or other material obligations pursuant to, or
accelerate vesting under, any of Buyer's stock option plans, or any grant or
award under any of the foregoing; (iii) violate, or conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Buyer or any of
the Buyer Subsidiaries under, or result in being declared void, voidable, or
without further binding effect, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contract, agreement or other instrument, commitment or obligation
to which Buyer or any of the Buyer Subsidiaries is a party, or by which Buyer or
any of the Buyer Subsidiaries or any of their properties is bound or affected,
except for any of the foregoing matters which, individually or in the aggregate,
would not have a Buyer Material Adverse Effect; or (iv) other than the
Regulatory Filings, require any consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority except where the failure to obtain any such consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority would not have a Buyer Material Adverse Effect.
6.7 SEC Documents. Buyer has filed all required forms, reports and
documents with the SEC since December 31, 1994 (collectively, the "Buyer SEC
Reports") all of which were prepared in accordance with the applicable
requirements of the Securities Laws. The Buyer SEC Reports were filed with the
SEC in a timely manner and constitute all forms, reports and documents required
to be filed by Buyer since December 31, 1994 under the Securities Laws. As of
their respective dates, the Buyer SEC Reports (i) complied as to form in all
material respects with the applicable requirements of the Securities Laws and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of Buyer included in or
incorporated by reference into the Buyer SEC Reports (including the related
notes and schedules) fairly presents the consolidated financial position of
Buyer and the Buyer Subsidiaries as of its date and each of the consolidated
statements of income, retained earnings and cash flows of Buyer included in or
incorporated by reference into the Buyer SEC Reports (including any related
notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of Buyer and the Buyer Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein and
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except, in the case of the unaudited statements, as permitted by Form 10-Q
pursuant to Section 13 or 15(d) of the Exchange Act.
6.8 Litigation. Except as set forth in Section 6.8 of the Buyer Disclosure
Letter, there are (i) no continuing orders, injunctions or decrees of any court,
arbitrator or governmental authority to which Buyer or any Buyer Subsidiary is a
party or by which any of its properties or assets are bound, or, to the
reasonable best knowledge of Buyer, to which any person who is now, or has been
at any time prior to the date hereof, a director, officer, employee or agent of
Buyer or any Buyer Subsidiary acting in such capacity is a party, and (ii) no
actions, suits or proceedings pending against Buyer or any Buyer Subsidiary or,
to the reasonable best knowledge of Buyer, threatened against Buyer or any Buyer
Subsidiary or against any person who is now, or has been at any time prior to
the date hereof, a director, officer, employee or agent of Buyer or any Buyer
Subsidiary acting in such capacity, at law or in equity, or before or by any
federal or state commission, board, bureau, agency or instrumentality, that in
the case of clause (i) or (ii) are reasonably likely, individually or in the
aggregate, to have a Buyer Material Adverse Effect. There are no written, nor to
Buyer's knowledge threatened, claims made against Buyer or any Buyer Subsidiary
by any existing or former joint venture partner or other partner of Buyer or any
Buyer Subsidiary that are reasonably likely, individually or in the aggregate,
to have a Buyer Material Adverse Effect.
6.9 Absence of Certain Changes. Except as disclosed in the Buyer SEC
Reports filed with the SEC prior to the date hereof, since December 31, 1994,
Buyer and the Buyer Subsidiaries have conducted their business only in the
ordinary course of such business and there has not been (i) any Buyer Material
Adverse Effect; (ii) as of the date hereof, any declaration, setting aside or
payment of any dividend or other distribution with respect to the Buyer Stock,
except dividends of $0.45 per share paid on March 31, 1995 and June 30, 1995,
and $0.47 per share paid on September 29, 1995 and December 29, 1995; or (iii)
any material change in Buyer's accounting principles, practices or methods.
6.10 Taxes. Except as set forth in Section 6.10 of the Buyer Disclosure
Letter:
(a) Buyer and each of the Buyer Subsidiaries has paid, caused to be
paid or accrued all Taxes required to be paid or accrued by it through the
date hereof;
(b) Buyer and each of the Buyer Subsidiaries has timely filed all
federal, state, local and foreign tax returns required to be filed by any
of them through the date hereof, and all such returns completely and
accurately set forth the amount of any Taxes relating to the applicable
period;
(c) Buyer and each Buyer Subsidiary has withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or
other party;
(d) For its taxable year ended December 31, 1994 and at all times
thereafter up to and including the date hereof, Buyer has qualified to be
treated as a REIT within the meaning of Sections 856-860 of the Code,
including, without limitation, the requirements of Sections 856 and 857 of
the Code. Buyer has qualified as a REIT for every taxable year in which it
existed. For the periods described in the preceding sentence, Buyer has met
all requirements necessary to be treated as a REIT for purposes of the
income tax provisions of those states in which Buyer is subject to income
tax and which provide for the taxation of a REIT in a manner similar to the
treatment of REITs under Sections 856-860 of the Code;
(e) Neither the IRS nor any governmental authority is now asserting by
written notice to Buyer or any Buyer Subsidiary or, to the knowledge of
Buyer, threatening to assert against Buyer or any Buyer Subsidiary any
deficiency or claim for additional Taxes. There is no dispute or claim
concerning any tax liability of Buyer or any Buyer Subsidiary either
claimed or raised in writing by the IRS. There is no dispute or claim
concerning any tax liability of a material nature of Buyer or any Buyer
Subsidiary either claimed or raised in writing by any other governmental
authority, or, to the knowledge of Buyer, which may be claimed or raised by
any federal or state governmental authority. No written claim has ever been
made by a taxing authority in a jurisdiction where Buyer does not file
reports and returns that Buyer is or may be subject to taxation by that
jurisdiction. To the knowledge of Buyer, there are no security interests on
any of the assets of Buyer or any Buyer Subsidiary that arose in connection
with any failure (or alleged
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failure) to pay any Taxes when due. Buyer has never entered into a closing
agreement pursuant to Section 7121 of the Code;
(f) Buyer has not received written notice of any audit of any tax
return filed by Buyer, and Buyer has not been notified in writing by any
tax authority that any such audit is contemplated or pending. Neither Buyer
nor any of the Buyer Subsidiaries has executed or filed with the IRS or any
other taxing authority any agreement now in effect extending the period for
assessment or collection of any income or other Taxes, and no extension of
time with respect to any date on which a tax return was or is to be filed
by Buyer is in force. True, correct and complete copies of all federal,
state and local income or franchise tax returns filed by Buyer and each of
the Buyer Subsidiaries and all written communications relating thereto have
been delivered to Copley or made available to representatives of Copley;
and
(g) Each of the Buyer Subsidiaries of which all the outstanding
capital stock is owned solely by Buyer is a Qualified REIT Subsidiary as
defined in Section 856(i) of the Code. The Buyer Subsidiaries listed as
partnerships in Section 6.4 of the Buyer Disclosure Letter are, and have
been at all times, properly classified as partnerships for federal income
tax purposes and have not been classified as publicly-traded partnerships
for federal income tax purposes.
6.11 Books and Records.
(a) The books of account and other financial records of Buyer and each
of the Buyer Subsidiaries are true, complete and correct in all material
respects, have been maintained in accordance with good business practices,
and are accurately reflected in all material respects in the financial
statements included in the Buyer SEC Reports.
(b) The minute books and other records of Buyer and each of the Buyer
Subsidiaries have been made available to Copley, contain in all material
respects accurate records of all meetings and accurately reflect in all
material respects all other corporate action of the shareholders and
directors and any committees of the Board of Directors of Buyer and each of
the Buyer Subsidiaries.
6.12 Properties. All of the real estate properties owned by Buyer and each
of the Buyer Subsidiaries (the "Buyer Properties") are set forth in Section 6.12
of the Buyer Disclosure Letter. Buyer has made available to Copley for
inspection the title reports ("Buyer Title Reports") and surveys ("Buyer
Surveys") relating to the Buyer Properties listed in Section 6.12 of the Buyer
Disclosure Letter. Buyer is not aware of any encumbrance to title to the Buyer
Properties or any survey matter affecting the Buyer Properties other than (i)
matters listed in the Buyer Title Reports, (ii) matters shown on the Buyer
Surveys, (iii) ordinances and regulations, including zoning ordinances and
building codes, affecting building use or occupancy, (iv) mechanics', carriers',
workmen's liens or encumbrances which are the responsibility of tenants under
leases, or which otherwise do not have a material adverse effect on the value of
the Buyer Properties as a whole and (v) the title insurance policies referred to
in the next sentence. Section 6.12 of the Buyer Disclosure Letter sets forth all
of the title insurance policies of Buyer or the applicable Buyer Subsidiary
relating to the Buyer Properties and such policies are, at the date hereof, in
full force and effect and no claims have been made against any such policies.
Except as set forth in Section 6.12 of the Buyer Disclosure Letter, to the best
knowledge of Buyer (i) Buyer has obtained all material certificates, permits and
licenses from any governmental authority having jurisdiction over any of the
Buyer Properties which are not the responsibility of tenants and to Buyer's
knowledge no tenant has failed to obtain any such certificate, permit or
license, and all agreements, easements and other rights which are necessary to
permit the lawful use and operation of all driveways, roads and other means of
egress and ingress to and from any of the Buyer Properties have been obtained
and are in full force and effect; (ii) the Buyer Properties are in full
compliance with all governmental permits, licenses and certificates except where
the failure to be in compliance would not be reasonably likely to have a Buyer
Material Adverse Effect; (iii) no written notice of any violation of any
federal, state or municipal law, ordinance, order, regulation or requirement
affecting any portion of any of the Buyer Properties has been issued by any
governmental authority which has not been remedied or cured; (iv) there are no
material structural defects relating to any of the Buyer Properties; (v) the
building systems of each Buyer Property are in working order in all material
respects; (vi) there is no physical damage to any Buyer Property in excess of
$50,000 for which there is no insurance in effect covering the full cost of the
restoration; or (vii) there is no
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current renovation or restoration or tenant improvements to any Buyer Property
or any portion thereof, the cost of which exceeds $50,000 individually. Except
as disclosed in Section 6.12 of the Buyer Disclosure Letter, the use and
occupancy of each of the Buyer Properties complies in all material respects with
all applicable codes and zoning laws and regulations, and Buyer has no knowledge
of any pending or threatened proceeding or action that will in any manner affect
the size of, use of, improvements on, construction on, or access to any of the
Buyer Properties, with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such Buyer Properties. Neither
Buyer nor any of the Buyer Subsidiaries has received any written notice to the
effect that (A) any betterment assessments have been levied against, or any
condemnation or rezoning proceedings are pending or threatened with respect to
any of the Buyer Properties, or (B) any zoning, building or similar law, code,
ordinance, order or regulation is or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any of
the Buyer Properties or by the continued maintenance, operation or use of the
parking areas.
6.13 Environmental Matters. Except as set forth in Section 6.13 of the
Buyer Disclosure Letter and any environmental assessment or report listed
therein, to the best of Buyer's actual knowledge: (i) no Hazardous Substances or
Hazardous Wastes have been or are being released into the environment,
discharged into the environment or disposed of from, at, on or under the Buyer
Properties; (ii) no Hazardous Substances or Hazardous Wastes have been or are
being generated or treated at the Buyer Properties or discharged from the Buyer
Properties, except in compliance in all material respects with applicable Laws;
(iii) no Hazardous Wastes have been or are being stored for more than 90 days or
handled at or on the Buyer Properties, except in compliance in all material
respects with applicable Laws; (iv) none of the Buyer Properties are listed on,
and Buyer has not received written or oral notice that any of the Buyer
Properties are being considered for inclusion on, NPL, CERCLIS, or any State or
local listing of sites which are known or suspected to be contaminated by
Hazardous Substances or Hazardous Wastes; (v) there are no on-going violations
of any Law at any Buyer Properties which could result in contamination of the
land, surface water or groundwater from, at, on or under any such properties;
and (vi) no Government Agency is investigating or has provided written notice
that it is considering investigating any alleged or potential release,
discharge, disposal or storage of Hazardous Substances or Hazardous Wastes at,
on, under or from any Buyer Properties.
With respect to properties previously owned, leased or in the possession of
Buyer or Buyer Subsidiaries ("Buyer Previous Properties"), Buyer has no actual
knowledge that any of the activities or conditions described in clauses (i),
(ii) or (iii) as not having taken place or existed at the Buyer Properties took
place or existed at the Buyer Previous Properties during the period when Buyer
or the Buyer Subsidiaries owned, leased or possessed the properties. In
addition, Buyer has no actual knowledge that any of the Buyer Previous
Properties are listed or are being considered for listing on any of the lists
described in clause (iv) or are being investigated or considered for
investigation as described in clause (vi).
Except as disclosed in Section 6.13 of the Buyer Disclosure Letter, to the
best knowledge of Buyer after due inquiry, neither Buyer nor any Buyer
Subsidiary has received any written notice from any Government Agency with
respect to alleged or potential liability relating in any way to Hazardous
Substances or Hazardous Wastes at, on, under or from any Buyer Property or Buyer
Previous Properties.
6.14 No Brokers. Neither Buyer nor any of the Buyer Subsidiaries has
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of such entity or Copley to pay any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby, except that Buyer has retained PaineWebber as
its financial advisor, the arrangements with which have been disclosed in
writing to Copley prior to the date hereof. Other than the foregoing
arrangements and Copley's arrangements set forth in Section 5.14, Buyer is not
aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
6.15 Opinion of Financial Advisor. Buyer has received the opinion of
PaineWebber to the effect that, as of the date hereof, the Stock Consideration
is fair to the holders of Buyer Stock from a financial point of view, and has
delivered a true and correct copy of such opinion to Copley.
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6.16 Copley Stock Ownership. Except as set forth in Section 6.16 of the
Buyer Disclosure Letter, neither Buyer nor any of the Buyer Subsidiaries owns
any shares of capital stock of Copley or other securities convertible into
capital stock of Copley.
6.17 Related Party Transactions. Set forth in Section 6.17 of the Buyer
Disclosure Letter is a list of all arrangements, agreements and contracts
entered into by Buyer or any of the Buyer Subsidiaries (which are or will be in
effect as of or after the date of this Agreement) with (i) any consultant
(excluding legal counsel, accountants and financial advisors) involving payments
in excess of $50,000 and which may not be terminated within 90 days by Buyer,
(ii) any person who is an officer, director or affiliate of Buyer or any of the
Buyer Subsidiaries, any relative of any of the foregoing or any entity of which
any of the foregoing is an affiliate or (iii) any person who acquired Buyer
Stock in a private placement. All such documents are listed in Section 6.17 of
the Buyer Disclosure Letter and the copies of such documents, which have
previously been provided or made available to Copley and its counsel, are true
and correct.
6.18 Contracts and Commitments. Section 6.18 of the Buyer Disclosure
Letter sets forth (i) all notes, debentures, bonds and other evidence of
indebtedness which are secured or collateralized by mortgages, deeds of trust or
other security interests in the Buyer Properties or personal property of Buyer
and each of the Buyer Subsidiaries and (ii) each Commitment entered into by
Buyer or any of the Buyer Subsidiaries which may result in total payments or
liability in excess of $50,000 and which may not be terminated within 90 days by
Buyer or the Buyer Subsidiary which is a party thereto. Copies of the foregoing
are listed in Section 6.18 of the Buyer Disclosure Letter and the copies of such
documents, which have previously been provided or made available to Copley and
its counsel, are true and correct copies. None of Buyer or any of the Buyer
Subsidiaries has received any written notice of a default that has not been
cured under any of the documents described in clause (i) above or is in default
respecting any payment obligations thereunder beyond any applicable grace
periods, except where such default would not have a Buyer Material Adverse
Effect. To the best knowledge of Buyer, neither Buyer nor any of the Buyer
Subsidiaries is in default with respect to any obligations, which individually
or in the aggregate are material, under any joint venture agreements to which
Buyer or any of the Buyer Subsidiaries is a party.
6.19 Buyer Stock. The issuance and delivery by Buyer of shares of Buyer
Stock in connection with the Merger and this Agreement have been duly and
validly authorized by all necessary corporate action on the part of Buyer except
for the approval of its stockholders contemplated by this Agreement. The shares
of Buyer Stock to be issued in connection with the Merger and this Agreement,
when issued in accordance with the terms of this Agreement, will be validly
issued, fully paid, nonassessable and free of preemptive rights.
6.20 Convertible Securities. Buyer has no outstanding options, warrants or
other securities exercisable for, or convertible into, shares of Buyer Stock,
the terms of which would require any anti-dilution adjustments by reason of the
consummation of the transactions contemplated hereby.
6.21 Definition of Buyer's Knowledge. As used in this Agreement, the
phrase "to the knowledge of Buyer" or "to the best knowledge of Buyer" or any
similar phrase shall mean the actual, not constructive or imputed, knowledge of
Leland R. Speed, David H. Hoster II and N. Keith McKey without any obligation on
any of their parts to make any independent investigation of the matters being
represented and warranted, or to make any inquiry of any other persons, or to
search or examine any files, records, books, correspondence and the like.
ARTICLE 7. COVENANTS
7.1 Acquisition Proposals.
(a) Unless and until this Agreement shall have been terminated in
accordance with its terms, Copley agrees and covenants that (A) neither it
nor any Copley Subsidiary shall, and each of them shall direct and use its
best efforts to cause its respective officers, directors, employees, agents
and representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any of the Copley Subsidiaries)
not to, directly or indirectly, initiate, solicit or knowingly encourage
any inquiries or the making or implementation of any proposal or offer
(including, without limitation, any
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proposal or offer to its stockholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation or similar
transaction involving, or any purchase (except as permitted under Section
7.2 hereof) of 10% or more of the assets, any equity securities or
partnership interests of Copley or any Copley Subsidiary, other than the
transactions contemplated by this Agreement (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal") or engage in
any negotiations concerning, or provide any confidential information or
data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make
or implement an Acquisition Proposal; (B) Copley will immediately cease and
cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing
and will take the necessary steps to inform the individuals or entities
referred to above of the obligations undertaken in this Section 7.1; and
(C) Copley will notify Buyer immediately if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with,
Copley.
(b) Notwithstanding anything set forth in this Agreement to the
contrary (i) the Board of Directors of Copley may furnish information to or
enter into discussions or negotiations with any person or entity that makes
an unsolicited bona fide Acquisition Proposal, if, and only to the extent
that, the Board of Directors of Copley, after consultation with and based
upon the advice of Goodwin Procter & Hoar, Hale and Dorr or another
nationally recognized law firm selected by the Board of Directors of
Copley, determines in good faith that such action is required for the Board
of Directors to comply with its fiduciary duties to stockholders under
applicable law, provided that prior to furnishing such information to, or
entering into discussions or negotiations with, such person or entity,
Copley provides written notice to Buyer to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such
person or entity, and Copley keeps Buyer informed of the status of any such
discussions or negotiations, (ii) the Board of Directors of Copley may, to
the extent applicable, comply with Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to an Acquisition Proposal, and (iii) Copley
may furnish information to, enter into discussions or negotiations with,
execute an agreement with, or consummate transactions concerning (w)
Bermant (including, without limitation, the Bermant/UBC Agreement) in
connection with the sale of the UBC Interest, (x) Summer Hill, Ltd. and its
affiliates, successors and assigns in connection with that certain purchase
option of Summer Hill, Ltd. described in Section 7.2 of the Copley
Disclosure Letter (the "Summer Hill Option"), and (y) Gary and Lenora
Hewson, in connection with the exchange of tenancy-in-common interests
affecting certain property of the Company described in Section 5.9 of the
Copley Disclosure Letter.
7.2 Conduct of Businesses.
(a) Prior to the Effective Time, except as specifically permitted by
this Agreement, unless the other party has consented in writing thereto,
Buyer and Copley:
(i) Shall use their reasonable best efforts, and shall cause each
of their respective Subsidiaries to use their reasonable best efforts,
to preserve intact their business organizations and goodwill and keep
available the services of their respective officers and employees;
(ii) Shall confer on a regular basis with one or more
representatives of the other to report operational matters of
materiality and, subject to Section 7.1, any proposals to engage in
material transactions;
(iii) Shall promptly notify the other of any material emergency or
other material change in the condition (financial or otherwise),
business, properties, assets, liabilities, prospects or the normal
course of their businesses or in the operation of their properties, any
material governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the
breach in any material respect of any representation or warranty
contained herein; and
(iv) Shall promptly deliver to the other true and correct copies of
any report, statement or schedule filed with the SEC subsequent to the
date of this Agreement.
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(b) Prior to the Effective Time, unless Buyer has consented thereto
(and Buyer hereby agrees to give good faith consideration to any such
request for consent by Copley and to respond to any such request within
five (5) business days and in the event no response is received by Copley
by the expiration of such five business day period, such consent shall be
deemed given) Copley:
(i) Shall, and shall cause each Copley Subsidiary to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted, subject to
clauses (ii)-(ix) below;
(ii) Shall not, and shall cause each Copley Subsidiary not to,
acquire, enter into an option to acquire or exercise an option or
contract to acquire additional real property, incur additional
indebtedness, encumber assets or commence construction of, or enter into
any agreement or commitment to develop or construct, any other type of
real estate projects except for the transactions contemplated in the
Copley Disclosure Letter;
(iii) Shall not amend Copley's Certificate or its By-laws, and
shall cause each Copley Subsidiary not to amend its charter, bylaws,
joint venture documents, partnership agreements or equivalent documents
except as contemplated by this Agreement or the Copley Disclosure
Letter;
(iv) Shall not (A) issue any shares of its capital stock, effect
any stock split, reverse stock split, stock dividend, recapitalization
or other similar transaction, (B) grant, confer or award any option,
warrant, conversion right or other right not existing on the date hereof
to acquire any shares of its capital stock, (C) increase any
compensation or enter into or amend any employment agreement with any of
its present or future officers or directors, or (D) adopt any new
employee benefit plan (including any stock option, stock benefit or
stock purchase plan) or amend any existing employee benefit plan in any
material respect, except for changes which are less favorable to
participants in such plans;
(v) Shall not, and shall not permit any of the Copley Subsidiaries
to, except in accordance with and as permitted under Section 7.2(d) and
(e) hereof or as contemplated in the Copley Disclosure Letter, sell,
lease or otherwise dispose of (A) any Copley Properties or any portion
thereof or any of the capital stock of or partnership or other interests
in any of the Copley Subsidiaries or (B) except in the ordinary course
of business, any of its other assets which are material, individually or
in the aggregate;
(vi) Shall not, and shall not permit any of the Copley Subsidiaries
to, make any loans, advances or capital contributions to, or investments
in, any other person;
(vii) Shall not, and shall not permit any of the Copley
Subsidiaries to, pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of Copley included in the Copley SEC
Reports or incurred in the ordinary course of business consistent with
past practice;
(viii) Shall not, and shall not permit any of the Copley
Subsidiaries to, enter into any Commitment which may result in total
payments or liability by or to it in excess of $50,000 other than
Commitments for expenses of attorneys, accountants and investment
bankers incurred in connection with the Merger; and
(ix) Shall not, and shall not permit any of the Copley Subsidiaries
to, enter into any Commitment with any officer, director, consultant or
affiliate of Copley or any of the Copley Subsidiaries.
(c) (i) Prior to the Effective Time, Buyer shall not, without the
prior written consent of Copley (and Copley hereby agrees to give good
faith consideration to any such request for consent by Buyer and to respond
to any such request within five (5) business days and in the event no
response is received by
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Buyer by the expiration of such five business day period, such consent
shall be deemed given): (x) directly or indirectly through a Buyer
Subsidiary merge or consolidate with, or acquire all or substantially all
of the assets of, any person or entity except for LNH REIT, Inc.; (y)
incur, in one transaction or a series of transactions, an additional
$15,000,000 of indebtedness; or (z) issue any shares of its capital stock
(except in connection with Buyer's employee or trustee benefit plans),
effect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, or grant, confer or award
any option, warrant, conversion right or other right not existing on the
date hereof to acquire any shares of its capital stock (except in
connection with Buyer's employee or trustee benefit plans). Notwithstanding
anything to the contrary in the foregoing sentence, in connection with any
potential merger or acquisition relating to TargetCo (as such term is
defined in Section 7.2 of the Buyer Disclosure Letter), prior to Buyer
entering into a definitive agreement with TargetCo, Buyer shall first
deliver written notice to Copley identifying and describing the price and
other terms of the proposed transaction (the "Notice") and, within 15
calendar days after receiving the Notice, Copley shall consent or withhold
its consent to the transaction (which consent will not be unreasonably
withheld). In the event Copley withholds its consent to the proposed
transaction, Buyer shall be prohibited from entering into a definitive
agreement with TargetCo until after the Effective Time. In the event Copley
consents to the price and terms of the proposed transaction, Buyer shall be
permitted to enter into a definitive agreement with TargetCo to consummate
the proposed transaction but only upon (A) the price which is not less
favorable to Buyer and its stockholders than the price set forth in the
Notice and (B) terms and conditions which are not less favorable in any
material respect to Buyer and its stockholders than those described in the
Notice; provided, however, that Buyer may not enter into such definitive
agreement during the period between the mailing of the Form S-4 to the
Copley stockholders and the Effective Time.
(ii) Except for the limitations described in clause (i) of Section
7.2(c) above. between the date of this Agreement and the Effective Time,
Buyer and the Buyer Subsidiaries may enter into leases with respect to all
or any portion of the Buyer Properties, acquire, lease, enter into an
option to acquire, lease or exercise an option or contract to acquire,
additional real property, incur additional indebtedness, encumber assets or
commence construction of, or enter into any agreement or commitment to
develop or construct, other real estate projects.
(d) Notwithstanding anything to the contrary set forth in this
Agreement and without limiting any of the other rights of Copley set forth
herein, between the date hereof and the Effective Time:
(i) Copley may enter into the Bermant/UBC Agreement or any other
agreement with Bermant to convey the UBC Interest, perform its
obligations contemplated thereunder and take such other actions as
Copley deems appropriate to fulfill its obligations under the Joint
Venture Agreement;
(ii) Copley may, in the event the Summer Hill Option is exercised
on or prior to the Effective Time, convey to Summer Hill Ltd. or its
successors, assigns or nominees the real property subject to such option
(the "Option Property") in accordance with the terms thereof;
(iii) to the extent Copley conveys the UBC Interest to Bermant or
the Option Property to Summer Hill Ltd., Copley shall distribute the net
proceeds therefrom to its stockholders prior to the Effective Time; and
(iv) Copley may declare, set aside and pay dividends of not more
than $.27 per Copley Share (except as permitted in clause (iii) above or
Section 7.16 hereof) for each full calendar quarter prior to the
Effective Time, it is currently anticipated that such dividends shall
have declaration dates, record dates and payment dates substantially
similar to those dates set forth in Exhibit C. Notwithstanding the
foregoing, in the event the Effective Time shall occur between the
record dates set forth in Exhibit C, Copley may declare, establish a
record date and set aside a dividend for the period commencing on the
most recent record date and ending on the date of the Effective Time
(the "Partial Period") in an amount which equals the quotient the
numerator of which equals $.27
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multiplied by the number of days comprising such Partial Period and the
denominator of which equals 90.
(e) Copley shall not, without the written consent of Buyer, which
consent may not be unreasonably withheld, (i) effect any material change in
any lease or occupancy agreement currently in effect which affects the
Copley Properties (together with such additional leases approved or
permitted pursuant to this Agreement, the "Leases"), (ii) renew or extend
the term of any Lease, unless the same is an extension or expansion
permitted pursuant to the terms of an existing Lease, or (iii) enter into
any new Lease or cancel or terminate any Lease. When seeking consent to a
new or modified Lease, Copley shall provide notice of the identity of the
tenant, a term sheet, letter of intent or proposed lease containing
material business terms (including, without limitation, rent, expense base,
concessions, tenant improvement allowances, brokerage commissions, and
expansion and extension options) and whatever credit and background
information, if any, Copley then possesses with respect to such tenant.
Buyer shall be deemed to have consented to any proposed Lease or Lease
modification if it has not responded to Copley within five (5) business
days after receipt of such information. Upon Buyer's approval or deemed
approval, Copley shall be entitled to enter into a Lease on the standard
lease form for such Property, without material change other than changes
customarily made to leases to other comparable tenants of the Property.
Buyer hereby designates David H. Hoster II and Marshall A. Loeb as
individuals who will be available and authorized to grant Lease approvals.
Notwithstanding anything in this Agreement to the contrary, Copley may
cancel or terminate any Lease or commence collection, unlawful detainer or
other remedial action against any tenant without Buyer's consent upon the
occurrence of a default by the tenant under said Lease.
7.3 Meetings of Stockholders. Each of Buyer and Copley will take all
action necessary in accordance with applicable law and its Certificate of
Incorporation and Bylaws or Declaration of Trust and Trustees Regulations, as
the case may be, to convene a meeting of its stockholders as promptly as
practicable to consider and vote upon the approval of this Agreement and the
transactions contemplated hereby. The Board of Trustees of Buyer and Board of
Directors of Copley each shall recommend that its stockholders approve this
Agreement and the transactions contemplated hereby and Buyer and Copley each
shall use their reasonable best efforts to obtain such approval, including,
without limitation, by timely mailing the joint proxy statement/prospectus
contained in the Form S-4 (as defined in Section 7.7 hereof) to their respective
stockholders; provided, however, that nothing contained in this Section 7.3
shall prohibit the Board of Trustees of Buyer or the Board of Directors of
Copley from failing to make such recommendation or using their reasonable best
efforts to obtain such approval if the Board of Trustees of Buyer or the Board
of Directors of Copley, as the case may be, has determined in good faith, after
consultation with and based upon the advice of counsel, that such action is
necessary for such Board of Trustees or Board of Directors to comply with its
fiduciary duties to its stockholders under applicable law. Buyer and Copley
shall coordinate and cooperate with respect to the timing of such meetings and
shall use their reasonable best efforts to hold such meetings on the same day.
It shall be a condition to the mailing of the Form S-4 that (i) Buyer shall have
received a "comfort" letter from Arthur Andersen LLP, independent public
accountants for Copley, dated as of a date within two business days before the
date on which the Form S-4 shall become effective, with respect to the financial
statements of Copley included or incorporated in the Form S-4, in form and
substance reasonably satisfactory to Buyer, and customary in scope and substance
for "comfort" letters delivered by independent public accountants in connection
with registration statements and proxy statements similar to the Form S-4, and
(ii) Copley shall have received a "comfort" letter from KPMG Peat Marwick, LLP,
independent public accountants for Buyer, dated as of a date within two business
days before the date on which the Form S-4 shall become effective, with respect
to the financial statements of Buyer included or incorporated in the Form S-4,
in form and substance reasonably satisfactory to Copley, and customary in scope
and substance for "comfort" letters delivered by independent public accountants
in connection with registration statements and proxy statements similar to the
Form S-4.
7.4 Filings; Other Action. Subject to the terms and conditions herein
provided, Copley and Buyer shall: (a) to the extent required, promptly make
their respective filings and thereafter make any other required submissions
under the HSR Act with respect to the Merger; (b) use all reasonable best
efforts to cooperate
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with one another in (i) determining which filings are required to be made prior
to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions and any third parties in connection with the execution
and delivery of this Agreement, the consummation of the transactions
contemplated by this Agreement and (ii) timely making all such filings and
timely seeking all such consents, approvals, permits or authorizations; (c) use
all reasonable best efforts to obtain in writing any consents required from
third parties to effectuate the Merger, such consents to be in reasonably
satisfactory form to Copley and Buyer; and (d) use all reasonable best efforts
to take, or cause to be taken, all other actions and do, or cause to be done,
all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by this Agreement. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purpose of this Agreement, the proper officers and trustees or directors of
Buyer and Copley shall take all such necessary action.
7.5 Inspection of Records. From the date hereof to the Effective Time,
each of Copley and Buyer shall allow all designated officers, attorneys,
accountants and other representatives of the other access at all reasonable
times to the records and files, correspondence, audits and properties, as well
as to all information relating to commitments, contracts, titles and financial
position, or otherwise pertaining to the business and affairs, of Copley and
Buyer and their respective subsidiaries.
7.6 Publicity. Buyer and Copley shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement or any transaction contemplated herein and shall not issue any
such press release or make any such public statement without the prior consent
of the other party, which consent shall not be unreasonably withheld; provided,
however, that a party may, without the prior consent of the other party, issue
such press release or make such public statement as may be required by law or
the rules of the applicable stock exchange if it has used its reasonable best
efforts to consult with the other party and to obtain such party's consent but
has been unable to do so in a timely manner.
7.7 Registration Statement. Buyer and Copley shall cooperate and promptly
prepare and Buyer shall file with the SEC as soon as practicable a Registration
Statement on Form S-4 under the Securities Act, with respect to the shares of
Buyer Stock issuable in the Merger, a portion of which Form S-4 shall also serve
as the joint proxy statement with respect to the meetings of the stockholders of
Copley and of Buyer in connection with the Merger (in its entirety, the "Form
S-4"). The respective parties will cause the Form S-4 to comply as to form in
all material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Each of Buyer and Copley
shall furnish all information about itself and its business and operation and
all necessary financial information to the other as the other may reasonably
request in connection with the preparation of the Form S-4. Buyer shall use its
reasonable best efforts, and Copley will cooperate with Buyer, to have the Form
S-4 declared effective by the SEC as promptly as practicable. Buyer shall use
its reasonable best efforts to obtain, prior to the effective date of the Form
S-4, all necessary state securities law or "blue sky" permits or approvals
required to carry out the transactions contemplated by this Agreement and will
pay all expenses incident thereto. Buyer agrees that the Form S-4 and each
amendment or supplement thereto at the time of mailing thereof and at the time
of the respective meetings of stockholders of Buyer and Copley, will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided, however,
that the foregoing shall not apply to the extent that any such untrue statement
of a material fact or omission to state a material fact was made by Buyer in
reliance upon and in conformity with information concerning Copley furnished to
Buyer by Copley for use in the Form S-4. Copley agrees that the information
provided by it for inclusion in the Form S-4 and each amendment or supplement
thereto, at the time of mailing thereof and at the time of the respective
meetings of stockholders of Buyer and Copley, will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Buyer will advise and
deliver copies (if any) to Copley, promptly after it receives notice thereof, of
the time when the Form S-4 has become effective or any supplement or amendment
has been filed, the issuance of any stop order, the suspension of the
qualification of the Buyer Stock issuable in connection with the Merger for
offering or sale in any jurisdiction, or any request
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by the SEC for amendment of the Form S-4 or comments thereon and responses
thereto or requests by the SEC for additional information.
7.8 Listing Application. Buyer shall promptly prepare and submit to the
New York Stock Exchange a listing application covering the shares of Buyer Stock
issuable in the Merger, and shall obtain prior to the Effective Time approval
for the listing of such Buyer Stock, subject to official notice of issuance.
7.9 Further Action. Each party hereto shall, subject to the fulfillment at
or before the Effective Time of each of the conditions of performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may reasonably be required to effect the Merger. In connection with
the Closing, Copley and each Copley Subsidiary shall use its best efforts to
deliver to Buyer such deeds, bills of sale, assignments, certificates,
affidavits and indemnities as are required to effectuate the consummation of the
transactions described herein.
7.10 Affiliates of Copley.
(a) At least 30 days prior to the Closing Date, Copley shall deliver
to Buyer a list of names and addresses of those persons who were, in
Copley's reasonable judgment, at the record date for its stockholders'
meeting to approve the Merger, "affiliates" (each such person, an
"Affiliate") of Copley within the meaning of Rule 145. Copley shall provide
Buyer such information and documents as Buyer shall reasonably request for
purposes of reviewing such list. Copley shall use its reasonable best
efforts to deliver or cause to be delivered to Buyer, prior to the Closing
Date, from each of the Affiliates of Copley identified in the foregoing
list, an Affiliate Letter in the form attached hereto as Exhibit B. Buyer
shall be entitled to place legends as specified in such Affiliate Letters
on the certificates evidencing any shares of Buyer Stock to be received by
such Affiliates pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the shares
of Buyer Stock, consistent with the terms of such Affiliate Letters.
(b) Buyer shall file the reports required to be filed by it under the
Exchange Act and the rules and regulations adopted by the SEC thereunder,
and it will take such further action as any Affiliate of Copley may
reasonably request, all to the extent required from time to time to enable
such Affiliate to sell shares of Buyer Stock received by such Affiliate in
the Merger without registration under the Securities Act pursuant to (i)
Rule 145(d)(1) or (ii) any successor rule or regulation hereafter adopted
by the SEC.
7.11 Expenses. Subject to the provisions of Article 9, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses. All
costs and expenses for professional services rendered pursuant to the
transactions contemplated by this Agreement including, but not limited to,
investment banking and legal services, will be paid by each party incurring such
services.
7.12 Indemnification and Insurance.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior
to the date hereof, or who becomes prior to the Effective Time, a director,
officer, employee, fiduciary or agent of Copley (including Copley Real
Estate Advisors, Inc.) or any of its subsidiaries (the "Indemnified
Parties") is, or is threatened to be, made a party based in whole or in
part on, or arising in whole or in part out of, or pertaining to (i) the
fact that he, she or it is or was a director, officer, employee or agent of
Copley or any of its subsidiaries, or is or was serving at the request of
Copley or any of its subsidiaries as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, or (ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use their
reasonable best efforts to defend against and respond thereto. It is
understood and agreed that Copley shall indemnify and hold harmless, and
after the Effective Time Buyer shall indemnify and hold harmless, as and to
the full extent permitted by applicable law, each Indemnified Party against
any losses, claims, damages, liabilities, costs, expenses (including
attorneys' fees and expenses), judgments, fines and
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amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any
such threatened or actual claim, action, suit, proceeding or investigation
(whether asserted or arising before or after the Effective Time), (i)
Copley, and the Buyer after the Effective Time, shall promptly pay expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the full extent permitted by
law, (ii) the Indemnified Parties may retain counsel satisfactory to them,
and Copley, and Buyer after the Effective Time, shall pay all fees and
expenses of such counsel for the Indemnified Parties within thirty days
after statements therefor are received, and (iii) Copley and Buyer will use
their respective reasonable best efforts to assist in the vigorous defense
of any such matter; provided, that neither Copley nor Buyer shall be liable
for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld); and provided further that the
Buyer shall have no obligation hereunder to any Indemnified Party when and
if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that
indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable law. Any Indemnified Party wishing to claim
indemnification under this Section 7.12, upon learning of any such claim,
action, suit, proceeding or investigation, shall notify Copley and, after
the Effective Time, Buyer, thereof, provided that the failure to so notify
shall not affect the obligations of Copley or Buyer except to the extent
such failure to notify materially prejudices such party.
(b) Buyer agrees that all rights to indemnification existing in favor,
and all limitations on the personal liability, of the Indemnified Parties
provided for in Copley's Certificate or its By-Laws or the charter or
by-laws or similar organizational documents of any of its subsidiaries as
in effect as of the date hereof with respect to matters occurring prior to
the Effective Time shall survive the Merger and shall continue in full
force and effect for a period of not less than six (6) years from the
Effective Time; provided, however, that all rights to indemnification in
respect of any claim (a "Claim") asserted or made within such period shall
continue until the disposition of such Claim. At or prior to the Effective
Time, Buyer shall purchase directors' and officers' liability insurance
coverage for Copley's directors and officers in a form acceptable to Copley
which shall provide such directors and officers with $5,000,000 of
aggregate coverage for six years following the Effective Time and which
shall have a retention of no more than $500,000; provided, however, that
the cost of such policy shall not exceed $600,000.
(c) This Section 7.12 is intended for the irrevocable benefit of, and
to grant third party rights to, the Indemnified Parties and shall be
binding on all successors and assigns of Buyer and Copley. Each of the
Indemnified Parties shall be entitled to enforce the covenants contained in
this Section 7.12 and Buyer acknowledges and agrees that each Indemnified
Party would suffer irreparable harm and that no adequate remedy at law
exists for a breach of such covenants.
(d) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially
all of its properties and assets to any person or entity, then, and in each
such case, proper provision shall be made so that the successors and
assigns of Buyer assume the obligations set forth in this Section 7.12.
7.13 Reorganization. From and after the date hereof and until the
Effective Time, none of Buyer, Copley or any of their respective subsidiaries or
other affiliates shall (i) knowingly take any action, or knowingly fail to take
any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code or (ii) enter
into any contract, agreement, commitment or arrangement with respect to the
foregoing. Following the Effective Time, Buyer shall use its reasonable best
efforts to conduct its business in a manner that would not jeopardize the
characterization of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
7.14 Redemption of Rights. The Board of Directors of Copley shall amend
the Rights Agreement so that neither the execution nor the delivery of this
Agreement will trigger or otherwise affect any rights or obligations under the
Rights Agreement, including causing the occurrence of a "Distribution Date" or a
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"Stock Acquisition Date," as defined in the Rights Agreement. Copley will redeem
all outstanding Rights at a redemption price of $.01 per Right effective
immediately prior to the Effective Time.
7.15 Payment of Advisory Fee. Notwithstanding anything to the contrary set
forth in this Agreement, Buyer and Copley hereby agree that, immediately prior
to the Effective Time, Copley shall pay to Copley Real Estate Advisors, Inc.
(the "Advisor") a fee the amount of which shall not exceed the amount of
advisory fee which the Advisor would be entitled to receive under that certain
Advisory Agreement, dated as of June 30, 1985, as amended to date, between
Copley and the Advisor.
7.16 REIT Status. Notwithstanding anything to the contrary set forth in
this Agreement, nothing in this Agreement shall prohibit Copley or any Copley
Subsidiary from taking any action at any time or from time to time that in the
reasonable judgment of Copley is necessary for Copley to maintain its
qualification as a REIT within the meaning of Sections 856-860 of the Code for
any period or portion thereof ending on or prior to the Merger including,
without limitations, making dividend or distribution payments to stockholders.
To the extent that any dividends or distributions are paid to Copley
stockholders other than the payments permitted to be made pursuant to Sections
7.2(d)(iii) or 7.2(d)(iv), the Share Value shall be reduced by the per share
amount of such dividend or distribution payments. Prior to the payment of any
such dividend or distribution contemplated by the preceding sentence, Copley
shall provide written notice of its intention to make such dividend or
distribution and the reasons therefor to Buyer. Following the Merger, Buyer
shall use its best efforts to take any such actions as may be necessary to
maintain Copley's status as a REIT for any period or portion thereof ending on
or prior to the Merger (including, without limitation, the mailing of
stockholder demand letters as required by Treasury Regulation sec.1.857-8).
ARTICLE 8. CONDITIONS
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the fulfillment at or prior
to the Effective Time of the following conditions, any or all of which may be
waived, in whole or in part by the parties hereto, to the extent permitted by
applicable law:
(a) This Agreement and the transactions contemplated hereby shall have
been approved by the requisite vote of stockholders of Buyer and Copley.
(b) The waiting period applicable to the consummation of the Merger
under the HSR Act, if applicable, shall have expired or been terminated.
(c) Neither of the parties hereto shall be subject to any order,
ruling or injunction of a court of competent jurisdiction which prohibits
the consummation of the transactions contemplated by this Agreement. In the
event any such order, ruling or injunction shall have been issued, each
party agrees to use its best efforts to have any such order, ruling or
injunction lifted, stayed or reversed.
(d) The Form S-4 shall have been declared effective by the SEC under
the Securities Act, and no stop order suspending the effectiveness of the
Form S-4 shall have been issued by the SEC, and no proceedings for that
purpose shall have been initiated or, to the knowledge of Buyer or Copley,
threatened by the SEC.
(e) Buyer shall have obtained the approval for the listing of the
shares of Buyer Stock issuable in the Merger on the New York Stock
Exchange, subject to official notice of issuance.
(f) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board, other regulatory
body or third parties required to be made or obtained by Buyer, Copley and
their respective subsidiaries and affiliated entities in connection with
the execution, delivery and performance of this Agreement shall have been
obtained or made, except (A) for any consents or approvals which are
required from any holders of mortgages affecting any Copley Properties (the
"Lender Consents") and (B) where the failure to have obtained or made any
such consent, authorization, order, approval, filing or registration, would
not have a Copley Material Adverse Effect or a Buyer Material Adverse
Effect, as the case may be. It shall be the sole responsibility of Buyer to
obtain
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the Lender Consents and to pay all costs, principal paydowns, fees and
expenses associated therewith. In the event Buyer is unable to obtain any
Lender Consent, Buyer shall cause the obligation underlying the respective
mortgage to be satisfied and the mortgage to be discharged on or prior to
Closing. The parties acknowledge and agree that the failure to obtain any
of the Lender Consents shall not constitute a basis for Buyer to terminate
or otherwise amend the terms of this Agreement.
8.2 Conditions to Obligations of Copley to Effect the Merger. The
obligation of Copley to effect the Merger shall be subject to the fulfillment at
or prior to the Effective Time of the following conditions, unless waived by
Copley:
(a) Each of the representations and warranties of Buyer contained in
this Agreement shall be true and correct in all material respects as of the
date of this Agreement and as of the Effective Time as though made on and
as of the Effective Time and Copley shall have received a certificate,
dated the Closing Date, signed on behalf of Buyer by the President of Buyer
to the foregoing effect.
(b) Buyer shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time, and
Copley shall have received a certificate, dated the Closing Date, signed on
behalf of Buyer by the President of Buyer to the foregoing effect.
(c) Copley shall have received the opinion of counsel, dated not less
than five business days prior to the date the Form S-4 is declared
effective by the SEC, reasonably acceptable to Copley, and subject to
customary conditions and qualifications (including reliance, in part, on
representations of Buyer and Copley and certain stockholders of Copley), to
the effect that the Merger will be treated for federal income tax purposes
as a tax-free reorganization qualifying under the provisions of Sections
368(a) of the Code, which opinion shall not have been withdrawn or modified
in any material respect.
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any change concerning Buyer or any of the Buyer
Subsidiaries, that has had or could be reasonably likely to have a Buyer
Material Adverse Effect and Copley shall have received a certificate, dated
the Closing Date, signed on behalf of Buyer by the President of Buyer to
the foregoing effect.
(e) The transactions contemplated by the Bermant/UBC Agreement shall
have been consummated prior to the Effective Date and the UBC Interest
shall have been conveyed to Bermant or, alternatively, Bermant shall have
failed to exercise (or failed to fulfill its obligations under) its right
of first refusal set forth in the Joint Venture Agreement or such right of
first refusal shall have otherwise been terminated in accordance with its
terms and the UBC Interest shall remain the property of Copley at the
Effective Time.
(f) Buyer shall have purchased directors' and officers' liability
insurance coverage in accordance with Section 7.12(b) hereof and such
insurance shall be in full force and effect.
(g) The officers of Copley shall have resigned from their positions at
Baygreen Eden Landing Industrial Park Owners Association and Buyer's
nominees shall have been appointed to fill such positions.
8.3 Conditions to Obligation of Buyer to Effect the Merger. The
obligations of Buyer to effect the Merger shall be subject to the fulfillment at
or prior to the Closing Date of the following conditions, unless waived by
Buyer:
(a) Each of the representations and warranties of Copley contained in
this Agreement shall be true and correct in all material respects as of the
date of this Agreement and as of the Effective Time as though made on and
as of the Effective Time, and Buyer shall have received a certificate,
dated the Closing Date, signed on behalf of Copley by the President of
Copley to the foregoing effect.
(b) Copley shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time, and
Buyer shall have received a certificate, dated the Closing Date, signed on
behalf of Copley by the President of Copley to the foregoing effect.
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(c) Buyer shall have received the opinion of counsel, dated not less
than five business days prior to the date the Form S-4 is declared
effective by the SEC, reasonably acceptable to Buyer, and subject to
customary conditions and qualifications (including reliance, in part, on
representations of Buyer and Copley and certain stockholders of Copley), to
the effect that the Merger will be treated for federal income tax purposes
as a tax-free reorganization qualifying under the provisions of Sections
368(a) of the Code, which opinion shall not have been withdrawn or modified
in any material respect.
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any change concerning Copley or any of the Copley
Subsidiaries, that has had or could be reasonably likely to have a Copley
Material Adverse Effect and Buyer shall have received a certificate, dated
the Closing Date, signed on behalf of Copley by the President of Copley to
the foregoing effect.
(e) The Board of Directors of Copley shall have amended the Rights
Agreement so that neither the execution nor the delivery of this Agreement
will trigger or otherwise affect any rights or obligations under the Rights
Agreement, including causing the occurrence of a "Distribution Date" or a
"Stock Acquisition Date," as defined in the Rights Agreement, and shall
redeem all outstanding Rights.
ARTICLE 9. TERMINATION
9.1 Termination. This Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after approval and adoption
of this Agreement by the stockholders of Copley and Buyer:
(a) by mutual written consent of Buyer and Copley; or
(b) by either Buyer or Copley if any United States federal or state
court of competent jurisdiction or other governmental entity shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and non-appealable,
provided that the party seeking to terminate shall have used its best
efforts to appeal such order, decree, ruling or other action; or
(c) by Buyer upon a breach of any representation, warranty, covenant
or agreement on the part of Copley set forth in this Agreement, or if any
representation or warranty of Copley shall have become untrue, in either
case such that the conditions set forth in Section 8.3(a) or Section
8.3(b), as the case may be, would be incapable of being satisfied by
September 1, 1996; provided, however, that, in any case, a willful breach
shall be deemed to cause such conditions to be incapable of being satisfied
for purposes of this Section 9.1(c);
(d) by Copley upon a breach of any representation, warranty, covenant
or agreement on the part of Buyer set forth in this Agreement, or if any
representation or warranty of Buyer shall have become untrue, in either
case such that the conditions set forth in Section 8.2(a) or Section
8.2(b), as the case may be, would be incapable of being satisfied by
September 1, 1996; provided, however, that, in any case, a willful breach
shall be deemed to cause such conditions to be incapable of being satisfied
for purposes of this Section 9.1(d);
(e) by Buyer if (i) the Board of Directors of Copley shall have
withdrawn, amended, modified or changed its approval or recommendation of
this Agreement or any of the transactions contemplated hereby; (ii) Copley
shall have failed as soon as practicable to mail the Form S-4 to its
stockholders or to include the recommendation of its Board of Directors of
this Agreement and the transactions contemplated hereby in the Form S-4; or
(iii) the Board of Directors of Copley shall have recommended that
stockholders of Copley accept or approve an Acquisition Proposal by a
person other than Buyer (or Copley or its Board shall have resolved to do
such);
(f) by Copley, if (i) the Board of Directors of Copley recommends to
Copley's stockholders approval or acceptance of an Acquisition Proposal by
a person other than Buyer, but only in the event that the Board of
Directors of Copley, after consultation with and based upon the advice of
Goodwin Procter & Hoar, Hale and Dorr or another nationally recognized law
firm selected by the Board of Directors of
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Copley, has determined in good faith that such action is necessary for the
Board of Directors of Copley to comply with its fiduciary duties to its
stockholders under applicable law, (ii) if Buyer shall have failed as soon
as practicable to mail the Form S-4 to its stockholders or to include the
recommendation of its Board of Trustees of this Agreement and the
transactions contemplated hereby in the Form S-4 or (iii) if the average
closing sales prices of Buyer Stock on the New York Stock Exchange on each
of the twenty (20) trading days immediately preceding the fifth trading day
prior to either (A) the date on which the Form S-4 is declared effective by
the SEC or (B) the date on which the meeting of Copley stockholders is to
be convened pursuant to Section 7.3 hereof, is equal to or less than $18.25
without any liability on the part of Copley;
(g) by either Buyer or Copley if this Agreement and the transactions
contemplated hereby shall have failed to receive the requisite vote for
approval and adoption by the stockholders of Buyer or Copley upon the
holding of a duly convened stockholder meeting;
(h) by either Buyer or Copley, if the Merger shall not have been
consummated on or before September 1, 1996 (other than due to the failure
of the party seeking to terminate this Agreement to perform its obligations
under this Agreement required to be performed by it at or prior to the
Effective Time).
The right of any party hereto to terminate this Agreement pursuant to this
Section 9.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective employees, officers,
trustees, directors, agents, representatives or advisors, whether prior to or
after the execution of this Agreement.
9.2 Effect of Termination.
(a) In the event of the termination and abandonment of this Agreement
pursuant to Section 9.1 hereof, this Agreement shall forthwith become void
and have no effect, without any liability on the part of any party hereto
or its affiliates, trustees, directors, officers or stockholders and all
rights and obligations of any party hereto shall cease except for the
agreements contained in Section 10.5; provided, however, that nothing
contained in this Section 9.2 shall relieve any party from liability for
any breach of this Agreement or shall relieve Copley from any liability
under this Article 9.
(b) If (x) Buyer terminates this Agreement pursuant to Section
9.1(e)(iii) or pursuant to 9.1(c) as a result of a willful breach by Copley
or (y) if Copley terminates this Agreement pursuant to Section 9.1(f)(i)
then Copley shall pay to Buyer an amount (the "Termination Amount") in cash
equal to the sum of (i) $1,500,000, plus (ii) Buyer's out-of-pocket costs
and expenses in connection with this Agreement and the transactions
contemplated hereby, evidenced by documentation reasonably acceptable to
Copley, up to a maximum of $375,000 in accordance with the provisions of
Section 9.3.
(c) If Buyer terminates this Agreement pursuant to Section 9.1(e)(i),
9.1(e)(ii) or 9.1(c) (except for a termination because of a willful breach
by Copley in which case, the provisions of Section 9.2(b) will apply),
Copley shall pay all of Buyer's out-of-pocket costs and expenses in
connection with this Agreement and the transactions contemplated thereby,
evidenced by documentation reasonably acceptable to Copley, up to a maximum
of $375,000 ("Expenses").
(d) The parties acknowledge and agree that the provisions for payment
of Expenses or the Termination Amount are included herein in order to
induce Buyer to enter into this Agreement and to reimburse Buyer for
incurring the costs and expenses related to entering into this Agreement
and consummating the transactions contemplated by this Agreement. The
parties hereto agree that the payment of Expenses or the Termination Amount
by Copley to Buyer shall constitute liquidated damages with respect to any
claim for damages which would otherwise be entitled to assert against
Copley with respect to this Agreement and the transactions contemplated
hereby and shall constitute the only remedy to which Buyer shall be
entitled in connection therewith.
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9.3 Payment of Termination Amount or Expenses.
(a) In the event that Copley is obligated to pay Buyer the Termination
Amount or Expenses pursuant to Section 9.2 (the "Section 9.2 Amount"),
Copley (or any other person to the extent provided by Section 9.2(d)) shall
pay to Buyer from the applicable Section 9.2 Amount deposited into escrow
in accordance with the next sentence, an amount equal to the lesser of (m)
the Section 9.2 Amount and (n) the sum of (1) the maximum amount that can
be paid to Buyer without causing Buyer to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code determined as if the payment of such
amount did not constitute income described in Sections 856(c)(2)(A)-(H) or
856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as determined by
Buyer's certified public accountants, plus (2) in the event Buyer receives
either (X) a letter from Buyer's counsel indicating that Buyer has received
a ruling from the IRS described in Section 9.3(b)(ii) or (Y) an opinion
from Buyer's counsel as described in Section 9.3(b)(ii), an amount equal to
the Section 9.2 Amount less the amount payable under clause (1) above. To
secure Copley's obligation to pay these amounts, Copley shall deposit into
escrow an amount in cash equal to the Section 9.2 Amount with an escrow
agent selected by Buyer and on such terms (subject to Section 9.3(b)) as
shall be agreed upon by Buyer and the escrow agent. The payment or deposit
into escrow of the Section 9.2 Amount pursuant to this Section 9.3(a) shall
be made within three days of the event which gives rise to the payment of
the Section 9.2 Amount by wire transfer or bank check.
(b) The escrow agreement shall provide that the Section 9.2 Amount in
escrow or any portion thereof shall not be released to Buyer unless the
escrow agent receives any one or combination of the following: (i) a letter
from Buyer's certified public accountants indicating the maximum amount
that can be paid by the escrow agent to Buyer without causing Buyer to fail
to meet the requirements of Sections 856(c)(2) and (3) of the Code
determined as if the payment of such amount did not constitute Qualifying
Income or a subsequent letter from Buyer's accountants revising that
amount, in which case the escrow agent shall release such amount to Buyer,
or (ii) a letter from Buyer's counsel indicating that Buyer received a
ruling from the IRS holding that the receipt by Buyer of the Section 9.2
Amount would either constitute Qualifying Income or would be excluded from
gross income within the meaning of Sections 856(c)(2) and (3) of the Code
(or alternatively, Buyer's legal counsel has rendered a legal opinion to
the effect that the receipt by Buyer of the Section 9.2 Amount would either
constitute Qualifying Income or would be excluded from gross income within
the meaning of Sections 856(c)(2) and (3) of the Code), in which case the
escrow agent shall release the remainder of the Section 9.2 Amount to
Buyer. The escrow agreement shall also provide that any portion of the
Section 9.2 Amount held in escrow for five years shall be released by the
escrow agent to Copley. Copley shall not be a party to such escrow
agreement and shall not bear any cost of or have liability resulting from
the escrow agreement.
(c) Notwithstanding anything to the contrary set forth in this
Agreement, in the event Buyer is required to file suit to seek all or a
portion of the Termination Amount and/or the Expenses and Buyer prevails in
such litigation, it shall be entitled to all expenses, including attorneys'
fees and expenses, which it has incurred in enforcing its rights hereunder;
provided that payment of such expenses shall be subject to the limitations
of Section 9.3(a) (determined as if such expenses were included in the
Section 9.2 Amount).
9.4 Extension; Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Trustees or Board of Directors, may, to
the extent legally allowed, (a) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
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ARTICLE 10. GENERAL PROVISIONS
10.1 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement, including, without limitation,
the certificates described in Sections 8.2(a), 8.2(b), 8.2(d), 8.3(a), 8.3(b)
and 8.3(d), shall terminate as of the Effective Time and shall not survive the
Merger, provided, however, that the agreements contained in Article 4, the last
sentence of Section 7.4 and Sections 7.10, 7.12, 7.13 and 7.14 and this Article
10 shall survive the Merger.
10.2 Notices. Any notice required to be given hereunder shall be in
writing and shall be sent by facsimile transmission (confirmed by any of the
methods that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to Buyer: EastGroup Properties
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
Attn: David H. Hoster II
Tel.: (601) 354-3555
Fax: (601) 949-4077
With copies to: Jaeckle, Fleischmann & Mugel
800 Fleet Bank Building
Twelve Fountain Plaza
Buffalo, New York 14202
Attn: Joseph P. Kubarek, Esq.
Tel.: (716) 856-0600
Fax: (716) 856-0432
If to Copley: Copley Properties, Inc.
399 Boylston Street, 13th Floor
Boston, Massachusetts 02116
Attn: Mary L. Lentz
Tel.: (617) 578-1200
Fax: (617) 578-1350
With copies to: Hale and Dorr
60 State Street
Boston, Massachusetts 02116
Attn: Kenneth A. Hoxsie, Esq. and
William R. O'Reilly, Jr., Esq.
Tel: (617) 526-6000
Fax: (617) 526-5000
And
Goodwin, Procter & Hoar
Exchange Place, 53 State Street
Boston, MA 02109
Attn: Richard E. Floor, P.C. and
Joseph L. Johnson III, Esq.
Tel: (617) 570-1000
Fax: (617) 523-1231
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
delivered.
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10.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Article 4 and Sections 7.10, 7.12, 7.13 and 7.14, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
10.4 Entire Agreement. This Agreement, the Exhibits, the Copley Disclosure
Letter, the Buyer Disclosure Letter and any documents delivered by the parties
in connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto except that the
Confidentiality Agreements (as hereinafter defined) shall remain in effect and
shall be binding upon Buyer and Copley in accordance with its terms. No addition
to or modification of any provision of this Agreement shall be binding upon any
party hereto unless made in writing and signed by all parties hereto.
10.5 Confidentiality. Each of Buyer and Copley understands and agrees that
it is still bound by and subject to the terms of the Confidentiality Agreements,
dated as of October 18, 1995 and February 1, 1996, by and between Buyer and
Copley (the "Confidentiality Agreements").
10.6 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Board of Trustees and Board of Directors, at
any time before or after approval of matters presented in connection with the
Merger by the stockholders of Copley and Buyer, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws. Each of Copley and Buyer hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the Delaware
Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in any inconvenient forum.
10.8 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
10.9 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
10.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
10.11 Incorporation. The Copley Disclosure Letter and the Buyer Disclosure
Letter and all Exhibits and Schedules attached hereto and thereto and referred
to herein and therein are hereby incorporated herein and made a part hereof for
all purposes as if fully set forth herein.
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<PAGE> 198
10.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.13 Interpretation and Certain Definitions.
(a) In this Agreement, unless the context otherwise requires, words
describing the singular number shall include the plural and vice versa, and
words denoting any gender shall include all genders.
(b) As used in this Agreement, the word "Subsidiary" or "Subsidiaries"
when used with respect to any party means any corporation, partnership,
joint venture, business trust or other entity, of which such party directly
or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar functions
with respect to such corporation or other organization.
(c) As used in this Agreement, the word "person" means an individual,
a corporation, a partnership, an association, a joint-stock company, a
trust, a limited liability company, any unincorporated organization or any
other entity.
(d) As used in this Agreement, the word "affiliate" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act.
10.14 Schedules. Any fact or item disclosed in one section of any
Disclosure Letter or schedule hereto ("Schedule") shall be deemed to be
disclosed with respect to any other relevant section of such Disclosure Letter
or Schedule, whether or not an explicit cross-reference appears.
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<PAGE> 199
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
ATTEST: COPLEY PROPERTIES, INC.
<TABLE>
<S> <C>
By: /s/ Peter P. Twining By: /s/ Mary L. Lentz
-----------------------------------------
- ---------------------------------------------
Name: Peter P. Twining Name: Mary L. Lentz
Title: Secretary Title: Chief Operating Officer
</TABLE>
ATTEST: EASTGROUP PROPERTIES
<TABLE>
<S> <C>
By: /s/ N. Keith McKey By: /s/ Leland R. Speed
-----------------------------------------
- ---------------------------------------------
Name: N. Keith McKey Name: Leland R. Speed
Title: Chief Financial Officer Title: Chief Executive Officer
and Secretary
</TABLE>
A-33
<PAGE> 200
APPENDIX B
[MORGAN STANLEY LETTERHEAD]
February 12, 1996
Board of Directors
Copley Properties, Inc.
399 Boylston Street, 13th Floor
Boston, MA 02116
Gentlemen:
We understand that Copley Properties, Inc. ("Copley" or the "Company") and
EastGroup Properties ("Buyer") have entered into an Agreement and Plan of
Merger, dated as of February 12, 1996 (the "Merger Agreement"), which provides,
among other things, for the merger (the "Merger") of Copley with and into Buyer.
Pursuant to the Merger each outstanding share of common stock, par value $1.00
per share, of Copley (the "Copley Common Stock"), other than shares held in
treasury or held by Buyer or any affiliate of Buyer, will be converted into the
right to receive between .6783 and .7704 shares of beneficial interest, par
value $1.00 per share, of Buyer (the "Buyer Stock") subject to certain
adjustments as set forth in the Merger Agreement. The terms and conditions of
the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Copley Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders (other than
Buyer and its affiliates).
For purposes of the opinion set forth herein, we have:
<TABLE>
<S> <C>
(i) analyzed certain publicly available financial statements and other information
of the Company;
(ii) analyzed certain internal financial statements and other financial and
operating data concerning the Company and the Company's real property assets
prepared by the management of the REIT advisor ("REIT Advisor") to the
Company;
(iii) analyzed certain financial projections prepared by the management of the REIT
Advisor to the Company;
(iv) discussed the past and current operations and financial condition and the
prospects of the Company and certain of its real property assets with senior
executives of the REIT Advisor;
(v) reviewed the reported prices and trading activity for the Copley Common Stock;
(vi) compared the financial performance of the Company and the prices and trading
activity of the Copley Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(vii) reviewed certain publicly available financial statements and other information
of the Buyer;
(viii) reviewed certain internal financial statements and other financial and
operating data concerning the Buyer prepared by the management of the Buyer;
(ix) reviewed certain financial projections prepared by the management of the
Buyer;
(x) discussed, on a limited basis, the past and current operations and financial
condition and the prospects of the Buyer and certain of its real property
assets with senior management of the Buyer;
(xi) reviewed the reported prices and trading activity of the Buyer Stock;
(xii) compared the financial performance of the Buyer and the prices and trading
activity of the Buyer Stock with that of certain other comparable
publicly-traded companies and their securities;
</TABLE>
<PAGE> 201
<TABLE>
<S> <C>
(xiii) participated in discussions and negotiations among representatives of the
Company, Buyer and their financial and legal advisors;
(xiv) reviewed the Merger Agreement and certain related documents; and
(xv) performed such other analyses as we have deemed appropriate.
</TABLE>
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company and of the Buyer. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company or of the Buyer. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Copley Common Stock
pursuant to the Merger Agreement is fair from a financial point of view to such
holders (other than Buyer and its affiliates).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHRISTOPHER J. NIEHAUS
-----------------------------
Christopher J. Niehaus
Principal
B-2
<PAGE> 202
[DRAFT -- SUBJECT TO CHANGE]
APPENDIX C
[PAINEWEBBER LETTERHEAD]
, 1996
Board of Trustees
EastGroup Properties
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to EastGroup Properties (the "Company") of the consideration to be paid
by the Company in connection with the proposed merger (the "Merger") of Copley
Properties, Inc. ("Copley") with and into the Company pursuant to the Agreement
and Plan of Merger dated as of February 12, 1996 (the "Merger Agreement"),
between Copley and the Company.
In the Merger, each share of common stock, par value $1.00 per share (the
"Copley Shares"), of Copley issued and outstanding immediately prior to the
effectiveness of the Merger (subject to certain exceptions) will be converted
into a number of shares of beneficial interest, par value $1.00 per share (the
"Company Shares"), of the Company equal to a fraction (the "Exchange Ratio"),
the numerator of which is the Share Value and the denominator of which is the
Buyer Stock Price. The "Share Value" is $15.60. The "Buyer Stock Price" means an
amount equal to the average of the sales price of the Company Shares on the New
York Stock Exchange on the 20 trading days immediately preceding the fifth
trading day prior to the Merger, subject to a specified minimum of $20.25 and a
specified maximum of $23.00. We understand that the Merger is intended to be
accounted for under the purchase method of accounting.
In connection with our opinion, we have reviewed certain financial and
other information that was publicly available or furnished to us by or on behalf
of the Company and Copley, including certain internal analyses, financial
forecasts, reports and other information prepared by their respective
managements, as well as certain modifications made by the Company to the
information provided by Copley and its management. We have held discussions with
senior management of the Company and with senior management of Copley concerning
their respective historical and current operations, financial condition and
prospects. We have also considered such other information, financial studies,
analyses and investigations and reviewed such other factors as we deemed
appropriate for purposes of this opinion.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by Copley and the
Company, and we have not assumed any responsibility to independently verify such
information or undertaken an independent appraisal of the assets of Copley or
the Company. With respect to the financial forecasts examined by us, we have
assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the respective
managements of the Company and Copley as to the future performance of the
Company and Copley, respectively, and their respective properties; and we have
assumed that the modifications made by the Company to the Copley financial
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the Company's management as to
the future performance of Copley and its properties. We have assumed, with your
consent, that all material assets and liabilities (contingent or otherwise,
known or unknown) of the Company and Copley are as set forth in their respective
consolidated financial statements. We have also assumed, at your direction, that
all consents of Copley's lenders required to complete the Merger will be
obtained, and that the Company will not be required to prepay
<PAGE> 203
any indebtedness of Copley as a result of the Merger or, alternatively, that the
Company will be able to refinance such indebtedness on the same terms without
prepayment penalties.
This opinion does not address the business decision of the Board of
Trustees of the Company to acquire Copley pursuant to the Merger or constitute a
recommendation to any shareholder of the Company as to how any such shareholder
should vote on the Merger. No opinion is expressed herein as to the price at
which the Company Shares may trade at any time.
This opinion has been prepared for the use of the Board of Trustees of the
Company and shall not be reproduced, summarized, described or referred to, or
given to any other person or otherwise made public, without the prior written
consent of PaineWebber Incorporated; provided, however, that this letter may be
reproduced in full in that portion of the Registration Statement on Form S-4
with respect to the Company Shares to be issued in the Merger that will serve as
the joint proxy statement of the Company and Copley with respect to the meetings
of the stockholders of the Company and Copley in connection with the Merger.
As you are aware, PaineWebber Incorporated is currently acting as financial
advisor to the Company and will receive a fee for rendering this opinion and
will receive an additional fee upon consummation of the Merger. We may provide
financial advisory services to, and act as an underwriter or placement agent
for, the Company in the future. In the ordinary course of our business, we trade
the equity and debt securities of the Company for our own account and for the
accounts of our customers and, accordingly, may at any time hold long or short
positions in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the Exchange Ratio is fair to the Company from a financial point of view.
Very truly yours,
PAINEWEBBER INCORPORATED
By:
--------------------------------------------------------
C-2
<PAGE> 204
APPENDIX D
EASTGROUP PROPERTIES
1994 MANAGEMENT INCENTIVE PLAN, AS AMENDED
<PAGE> 205
EASTGROUP PROPERTIES
1994 MANAGEMENT INCENTIVE PLAN, AS AMENDED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE NO.
- ----------- ------------------------------------------------------------------------- --------
<C> <S> <C>
Section 1. In General............................................................... D-1
1.1 Introduction............................................................. D-1
1.2 Purpose.................................................................. D-1
1.3 Forms of Incentives...................................................... D-1
1.4 Definitions.............................................................. D-1
1.5 Administration........................................................... D-2
1.6 Shares Available......................................................... D-2
Section 2. Options.................................................................. D-2
2.1 Grant of Options......................................................... D-2
2.2 Terms of Options......................................................... D-2
2.3 Additional Terms of Incentive Stock Options.............................. D-4
2.4 Recapitalization or Reorganization....................................... D-4
2.5 Limitations on Option Grants............................................. D-5
Section 3. Annual Incentive Awards.................................................. D-5
3.1 Participants............................................................. D-5
3.2 Trust FFO Goals.......................................................... D-5
3.3 Incentive Award Payout Objectives........................................ D-5
3.4 Annual Award Guidelines.................................................. D-5
3.5 Determination of Actual Amounts of Awards................................ D-5
3.6 Termination of Employment; Less than a Full Year of Participation........ D-6
3.7 Payment of Awards........................................................ D-6
3.8 Payment Upon Death; Designation of Beneficiary........................... D-6
3.9 No Assignment............................................................ D-7
Section 4. Miscellaneous............................................................ D-7
4.1 Effective Date........................................................... D-7
4.2 Amendment................................................................ D-7
4.3 Termination of Plan...................................................... D-7
4.4 No Right to Continued Employment......................................... D-7
4.5 Restrictions on Issuance of Shares; Rights as Shareholders............... D-7
4.6 Construction............................................................. D-7
4.7 Satisfaction of Tax Liabilities.......................................... D-7
</TABLE>
<PAGE> 206
EASTGROUP PROPERTIES
1994 MANAGEMENT INCENTIVE PLAN
SECTION 1. IN GENERAL
1.1 Introduction. EastGroup Properties (the "Trust") establishes the
EastGroup Properties 1994 Management Incentive Plan (the "Plan"), effective
September 22, 1994.
1.2 Purpose. The purposes of this 1994 Management Incentive Plan are to
provide greater incentive for management Employees, who are or will be primarily
responsible for the growth and success of the Trust's business, to exert their
best efforts on behalf of the Trust, and to further the identity of the interest
of management with those of the Trust's shareholders by encouraging management's
holdings of Shares in the Trust.
1.3 Forms of Incentives. This Plan shall provide incentives for certain
management Employees through grants of Options for Shares (see Part II below)
and through annual bonuses that are related to the Trust's achievement of FFO
goals and payable in part in the form of Shares (see Part III below).
1.4 Definitions. As used in this Plan:
(a) "Board of Trustees" or "Board" shall mean the Board of Trustees of
the Trust.
(b) "Committee" shall mean a committee of the Board of Trustees, which
committee shall be composed of those members of the Compensation Committee
of the Board of Trustees who are Disinterested Trustees, provided that,
should there be fewer than two members of the Compensation Committee who
are Disinterested Trustees, the Committee shall be composed of two or more
members of the Board of Trustees who are Disinterested Trustees, including
any who is a member of the Compensation Committee.
(c) "Disinterested Trustees" shall mean those members of the Board of
Trustees who are disinterested persons within the meaning of Rule
16b-3(c)(2) of the General Rules and Regulations under the Securities
Exchange Act of 1934.
(d) "Employee" shall mean an employee of the Trust or a Subsidiary.
(e) "FFO" shall mean funds from operations per Share. FFO shall be
measured by net income of the Trust, excluding gains or losses from sales
of property and other non-operating extraordinary items, plus depreciation,
and after adjustments for unconsolidated partnerships to reflect funds from
operations on the same basis. This measurement is intended to conform to
the current definition of "funds from operations" adopted by the National
Association of Real Estate Investment Trusts ("NAREIT") and shall be
construed accordingly. For purposes of the Plan, the measurement of FFO may
be changed in any year upon approval of the Board of Trustees to conform to
a change in the definition of "funds from operations" adopted by NAREIT. If
the measurement of FFO is so changed for any year, the measurement of FFO
for the prior year (against which the current year's change will be
calculated) shall be similarly changed so that the year-to-year comparisons
utilize consistent definitions of FFO.
(f) "Fair Market Value" of a Share shall mean, on any date, (i) if
Shares are traded on a national securities exchange, the closing price of
the Shares as reported on such exchange or under any composite transaction
report of such exchange on that date, or, if no prices are so reported on
that date, on the next preceding date on which such prices are so reported,
or (ii) if the Shares are traded in the over-the-counter market, the mean
between the closing bid and asked prices of the Shares or the price of
Shares quoted on that date, or, if no prices are so quoted on that date, on
the next preceding date on which such prices are so quoted.
(g) "Internal Revenue Code" or "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
<PAGE> 207
(h) "Option" shall mean an option granted pursuant to the Plan to
purchase a Share and may refer to either an incentive stock option as
defined in section 422 of the Internal Revenue Code or a non-qualified
stock option, that is, an option that is not an incentive stock option.
(i) "Permanent Disability" means a medically determinable physical or
mental impairment which may be expected to result in death or to last at
least a year and which renders an Employee incapable of performing that
Employee's duties with the Trust. A determination of disability will be
made by the Committee in a uniform, nondiscriminatory manner on the basis
of medical evidence.
(j) "Retirement" shall mean the termination of employment with the
Trust and its Subsidiaries after the attainment of age 65 or after the
attainment of age 55 and the completion of 6 years of service with the
Trust or its Subsidiaries.
(k) "Shares" shall mean the shares of beneficial interest, $1.00 par
value, of the Trust.
(l) "Subsidiary" shall mean any present or future subsidiary
corporation of the Trust as defined in section 425(f) of the Internal
Revenue Code.
1.5 Administration. The Plan shall be administered by the Committee. The
Committee shall have all the powers vested in it by the terms of the Plan. The
Committee shall have full authority to interpret the Plan and the Options
granted under the Plan, to prescribe, amend, and rescind rules and regulations
relating to the Plan, and to make any determinations it believes necessary or
advisable for the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any Option in the manner and to the extent the Committee deems desirable. Any
decision of the Committee in the administration of the Plan shall be in its sole
discretion and conclusive. The Committee may act only by a majority of its
members in office, except that the Committee may authorize any one or more of
its members or any officer of the Trust to execute and deliver documents on
behalf of the Committee.
The authority to make certain determinations under the Plan has been
reserved for the entire Board of Trustees, exclusive of those members of the
Board who are not Disinterested Trustees. Any such determination of the
Disinterested Trustees shall be in their sole discretion and conclusive.
Whenever the approval of the Disinterested Trustees is required under this Plan,
such approval shall require the affirmative vote of a majority of the members of
the Board of Trustees who are Disinterested Trustees.
1.6 Shares Available. Subject to the provisions of the following sentence,
the aggregate of the Shares made subject to Options granted under the Plan and
the Shares issued in connection with the payment of annual incentive awards
under the Plan shall not exceed 200,000. Should the Trust make a public or
private offering of Shares or repurchase any of the Shares after the adoption of
this Plan, the aggregate number of Shares available under the Plan shall
automatically increase or decrease by a number of Shares that is 5 percent of
the number of Shares sold in such offering or repurchased by the Trust, as the
case may be. A decrease in the number of Shares available hereunder pursuant to
the preceding sentence shall not effect any outstanding Option under this Plan.
In addition, the number of Shares available under this Plan shall increase by a
number that is 5 percent of the number of Shares issued by the Trust in any
merger or other business combination transaction. The aggregate Shares made
subject to Options that are incentive stock options shall not exceed 200,000 of
the number of Shares determined under the three immediately preceding sentences.
Upon the expiration or termination in whole or part of any unexercised Option,
the Shares subject to such Option shall again be available for grant under the
Plan.
SECTION 2. OPTIONS
2.1 Grant of Options.
(a) The Trust may from time to time grant Options to Employees to
purchase Shares under the Plan.
(b) The Committee shall select the Employees to whom Options are to be
granted and shall determine when Options are to be granted and the number
of Shares to be subject to each Option.
2.2 Terms of Options. Each Option granted to an Employee under the Plan
shall be evidenced by a written option agreement executed on behalf of the Trust
and by the holder of the Option, in such form and
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<PAGE> 208
upon such terms and conditions as the Committee shall determine and as are
consistent with the provisions of the Plan, including the following:
(a) The Committee shall determine the purchase price of each Share
subject to an Option, which price shall not be less than the Fair Market
Value of a Share on the date the Option is granted.
(b) An Option may be exercised in whole or in part from time to time
during such period as the Option shall specify, provided that no Option
shall be exercisable within one year after, or more than ten years after,
the date of the grant of the Option.
(c) An Option may require that the holder represent at the time of
each exercise of the Option that the Shares purchased are being acquired
for investment and not with a view to distribution.
(d) The purchase price of the Shares with respect to which an Option
is exercised shall be payable in full on the date the Option is exercised,
in cash or, to the extent authorized by the Committee at the time the
Option is granted, in Shares or in a combination of cash and Shares. The
value of a Share delivered in payment of the purchase price shall be its
Fair Market Value on the date the Option is exercised.
(e) An Option shall not be assignable or transferable by the Employee
to whom granted except by will or the laws of descent and distribution and
shall be exercisable, during the Employee's lifetime, only by him.
(f) Unless the Committee shall specify otherwise, the right of each an
Option holder to exercise his Option to purchase the number of Shares to
which the Option initially related shall accrue on a cumulative basis as
follows:
(i) One year after the Option is granted: 1/2
(ii) Two years after the Option is granted: 1/2
(g) Each agreement relating to an Option shall state the extent to
which the Option is intended to be either an incentive stock option or a
nonqualified stock option.
(h) Any Option that has not already expired, shall expire upon the
termination of the holder's employment with the Trust and its Subsidiaries,
whether by death or otherwise, and no Shares may thereafter be purchased
pursuant to the Option, except that:
(i) If an Option holder's employment is terminated by reason of
Permanent Disability or death, the Option holder's right to exercise the
Option in full shall automatically be accelerated as of the date
preceding the Option holder's Permanent Disability or Death. The Option
holder or, in the case of the Option holder's death while in the employ
of the Trust or a Subsidiary, the Option holder's estate or the person
to whom the Option holder's rights under the Option are transferred by
will or the law of descent and distribution may, within one year of the
date of the Option holder's Permanent Disability or Death, purchase all
the Shares remaining subject to the Option.
(ii) If an Option holder's employment is terminated by reason of
Retirement, the Option holder may, within twelve months after the date
of his Retirement, purchase any Shares the Option holder was entitled to
purchase under the Option on the date of his Retirement. The Committee
may, in its discretion, determine to accelerate, in whole or in part,
the right of an Option holder to exercise the Option upon Retirement, in
which case the number of Shares with respect to which the Option holder
may exercise the Option shall be adjusted accordingly.
(iii) If an Option holder's employment is terminated for any reason
other than Retirement, Permanent Disability, or death, the Option holder
may, within three months after the termination of his employment,
purchase any Shares the Option holder was entitled to purchase under the
Option on the date of the termination of his employment.
(iv) If the Option holder dies within the twelve month period
following his Retirement or Permanent Disability or within the three
month period following the termination of his employment
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<PAGE> 209
for any other reason, the Option holder's estate or the person to whom
the Option holder's rights are transferred by will or under the law of
descent and distribution may, within one year of the Option holder's
death, purchase any Shares the Option holder was entitled to purchase
under the Option on the date of his death.
(v) Nothing in this subsection (h) shall authorize the exercise of
an Option after the expiration of the exercise period provided in the
Option, nor later than ten years after the date of the grant of the
Option.
2.3 Additional Terms of Incentive Stock Options. Each incentive stock
option granted under the Plan shall be subject to the following terms and
conditions in addition to the terms and conditions described in Section 2.2
above:
(a) The purchase price of each Share subject to an incentive stock
option granted to an Employee who, at the time the Option is granted, owns
(directly and within the meaning of section 424(d) of the Code) Shares
possessing more than 10 percent of the combined voting power of all classes
of Shares of the Trust shall not be less than 110 percent of the Fair
Market Value of a Share on the date the Option is granted, and the Option
shall not be exercisable more than five years after the date of grant.
(b) To the extent the aggregate Fair Market Value (determined as of
the date an Option is granted) of the Shares for which an Employee is
granted Options designated incentive stock options first exercisable in any
calendar year (under this Plan and under all plans of the Trust and its
Subsidiaries) exceeds $100,000, the Option shall be treated as an Option
that is not an incentive stock option.
(c) If an Option holder disposes of Shares acquired pursuant to the
exercise of an incentive stock option in a disqualifying disposition within
the time periods identified in section 422(a)(1) of the Code, the Option
holder shall be required to notify the Trust of the disposition and provide
the Trust with information as to the date of disposition, sales price,
number of Shares involved, and any other information about the disposition
the Trust may reasonably request.
2.4 Recapitalization or Reorganization. The existence of the Plan and the
Options granted under the Plan shall not affect the right or power of the Board
or the shareholders of the Trust to make or authorize the adjustment,
recapitalization, reorganization or other change in the Trust's capital
structure or its business, any merger or consolidation of the Trust, any issue
of bonds, debentures, preferred or prior preference stocks ahead of or affecting
Shares or the rights of Shares, the dissolution or liquidation of the Trust or
any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding.
Any Shares with respect to which Options may be granted are Shares as
presently constituted, but if, and whenever, before the expiration of an Option,
the Trust shall effect a subdivision or consolidation of Shares or the payment
of a Share dividend on Shares without receipt of consideration by the Trust, the
number of Shares with respect to which such Option may thereafter be exercised
(i) in the event of an increase in the number of outstanding Shares, shall be
proportionately increased and the purchase price per Share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding Shares, shall be proportionately reduced and the purchase price per
Share shall be proportionately increased.
If the Trust shall effect a recapitalization or other change in its capital
structure, the number of Shares with respect to which a previously granted
Option may be exercised shall be the number and class of Shares to which the
Option holder would have been entitled pursuant to the terms of such
recapitalization if, immediately prior to such recapitalization, the Option
holder had been the holder of record of the number of Shares to which such
Option is then exercisable.
Notwithstanding the provision of any other Section of this Plan, the date
upon which Options are exercisable shall be accelerated so that all Options may
be exercised in full on or before the date of a "Change in Control" (as defined
below). For purpose of this Plan, a "Change in Control" of the Trust shall mean
a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), whether or
not the Trust is then subject to such reporting requirements; provided that,
without
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limitation, such a Change in Control shall be deemed to have occurred if (a) any
"person" (as such term is used in section 13(d) and 14(d) of the Exchange Act)
is or becomes "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Trust representing 30 percent
or more of the combined voting power of the Trust's then outstanding securities;
or (B) during any period of two consecutive years, the following persons (the
"Continuing Trustees") cease for any reason to constitute a majority of the
Board: individuals who at the beginning of such period constitute the Board and
new trustees each of whose election to the Board or nomination for election to
the Board by the Trust's security holders was approved by a vote of at least
two-thirds of the trustees then still in office who either were trustees at the
beginning of the period or whose election or nomination for election was
previously so approved; or (C) the security holders of the Trust approve a
merger or consolidation of the Trust with any other corporation, other than (i)
a merger or consolidation that would result in the voting securities of the
Trust outstanding immediately before the merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the Trust or of such surviving entity outstanding immediately
after such merger or consolidation or (ii) a merger of consolidation that is
approved by a Board having a majority of its members persons who are Continuing
Trustees, of which Continuing Trustees not less than two-thirds have approved
the merger or consolidation; or (D) the security holders of the Trust approve a
plan of complete liquidation of the Trust or an agreement for the sale or
disposition by the Trust of all or substantially all of the Trust's assets.
Except as expressly provided in this Section, the issuance by the Trust of
shares of any class or securities convertible into shares of any class, for
cash, property, labor or services, upon direct sale, upon the exercise of rights
or warrants, or upon the conversion of shares or obligations of the Trust
convertible into such shares or other securities, and in any case whether or not
for fair value, shall not affect, and no adjustment shall be made with respect
to, the number of Shares subject to Options previously granted or the purchase
price per Share.
2.5 Limitations on Option Grants. No individual shall be granted Options
under this Plan which, combined with all other Options granted to that
individual hereunder, will entitle that individual to purchase more than 100,000
Shares under Options granted pursuant to this Plan.
SECTION 3. ANNUAL INCENTIVE AWARDS
3.1 Participants. For each fiscal year of the Trust, the Committee shall
designate those officers of the Trust who may participate in the annual
incentive awards for that year.
3.2 Trust FFO Goals. Each year, at a meeting of the Board of Trustees, the
Committee shall establish the Trust's FFO goal for the purposes of the Plan for
the year and the minimum FFO that the Trust must exceed as a condition for the
payment of any incentive awards for the year under this Section 3 of the Plan.
3.3 Incentive Award Payout Objectives. The Committee shall establish
incentive award payout objectives for each participant for each year of
participation in the annual incentive award portion of this Plan. In preparation
for establishing such payout objectives, the Committee may seek the Chief
Executive Officer's recommendation regarding the payout objectives to be
established for participants other than the Chief Executive Officer.
3.4 Annual Award Guidelines. The Committee shall compose a set of
incentive award guidelines for each year. The guidelines shall set out
participants' incentive award payout objectives for the year in relation to the
Trust's FFO goal for the year. Appendix A displays the format for the incentive
award guidelines.
3.5 Determination of Actual Amounts of Awards. The Committee shall
determine the actual amount, if any, of a participant's incentive award for the
year, subject to the approval of those members of the Board of Trustees who are
Disinterested Trustees.
In preparation for determining the amount of a participant's award, the
Committee shall compute the amount that would be awarded if the participant's
incentive award payout objective as related to the Trust's FFO for the year were
to be awarded in full and may seek, with respect to each participant other than
the Chief Executive Officer, the Chief Executive Officer's evaluation of the
participant's contribution to the Trust during the year, in particular the
participant's contribution to the Trust's achievement of its FFO goal for the
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year, and the Chief Executive Officer's recommendation regarding the amount to
be awarded to the participant for the year. In making its determination the
Committee shall take into account its own evaluation of participants'
contributions, the Chief Executive Officer's evaluations and recommendations,
the extent to which the Trust has achieved or exceeded its FFO goal, and any
other factors the Committee finds relevant.
Upon approval of those members of the Board of Trustees who are the
Disinterested Trustees, the Committee's determination of the actual amount of an
award for a year or that no award shall be made to a participant for a year
shall be final and binding, provided however that no award shall be made for a
year unless the Trust's FFO for the year exceeds the minimum established for the
year, and that a participant's award for a year shall not exceed the maximum
payout objective specified in the participant's incentive award guidelines for
the year.
3.6 Termination of Employment; Less than a Full Year of
Participation. Participants who retire or resign or who are discharged or whose
employment with the Trust is otherwise terminated during a fiscal year are not
eligible for incentive awards with respect to such year. If a Participant's
employment terminates during the year because of death, the Committee in its
sole discretion may elect to award a partial bonus in an amount the Committee
deems appropriate or it may elect not to award a bonus.
Individuals may become participants during a fiscal year and may be
eligible for an award as determined by the Committee.
3.7 Payment of Awards. An annual incentive award under this Plan shall be
payable as follows: the Trust shall pay two-thirds of the amount of the award to
the participant in cash and shall issue to the participant a number of Shares of
the Trust having an aggregate value (as determined below) equal to one-third of
the amount of the award, except that the value of any fractional share shall be
paid in cash. The Trust shall make the cash payment and issue the required
Shares as soon as practicable following the determination of the amount of the
award, subject to Section 4.5.
For the purpose of calculating the number of Shares to be issued with
respect to a participant's incentive award for a given fiscal year of the Trust,
the value of a Share shall be deemed to equal the average of the closing prices
of a Share on the last five days on which Shares were traded in each quarter of
such fiscal year. If Shares have not been traded on an exchange or over the
counter on at least five days in each quarter of the given year, the Committee
shall determine the manner in which the value of a Share shall be determined for
purposes of this Plan.
If the payment of awards for a given year in the method described in the
first paragraph of this Section 3.7 would cause the aggregate number of Shares
issued under this Plan to exceed the maximum available number of Shares in
effect on the date of payment under Section 1.6, then the portion of awards for
that year payable in Shares shall be reduced from one-third to a fraction that
would not result in the maximum being exceeded, and awards for subsequent years
shall be paid fully in cash, unless and except to the extent the maximum
available number of Shares increases automatically in connection with a public
offering or the Board of Trustees with the approval of the Trust's shareholders
authorizes the issuance of a larger number of Shares under the Plan.
3.8 Payment Upon Death; Designation of Beneficiary. A participant may
designate one or more primary and contingent beneficiaries to receive any
incentive award that may be payable under this Section 3 of the Plan after the
participant's death. The designation of beneficiary shall be made in writing,
shall not be effective unless filed with the Committee before the participant's
death, and may be changed or revoked at any time without notice to any
beneficiary by the filing of a subsequent designation with the Committee. If a
participant designates more than one beneficiary, each shall share equally
unless the participant specifies a different allocation. If a participant fails
to designate a beneficiary, or should no designated beneficiary survive a
participant, any award that may be payable under this Plan after the
participant's death shall be paid to the participant's estate.
If a beneficiary entitled to payment should die after the participant's
death but before receiving payment of the full amount payable to him, the
balance of any amount payable shall be paid to the surviving beneficiary or
beneficiaries designated by the participant in accordance with the participant's
beneficiary designation. If
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there should be no designated beneficiaries surviving, the balance shall be paid
to the estate of the last beneficiary to die.
3.9 No Assignment. A participant may not assign any right to an incentive
award or payment under this Plan, and awards and payments shall not be subject
to alienation whether by garnishment, lien, or otherwise, except as required by
law.
SECTION 4. MISCELLANEOUS
4.1 Effective Date. This Plan is effective as of September 22, 1994,
subject to the approval of the Trust's shareholders. If such approval is not
obtained within twelve months of September 22, 1994, this Plan and all Options
granted pursuant to this Plan shall be void.
4.2 Amendment. The Board of Trustees may amend the Plan in any respect,
provided, however, that without the approval of the shareholders of the Trust
the Board may not (i) except as provided in Sections 1.6 and 2.4, increase the
maximum number of Shares that may be issued under the Plan as set forth in
Section 1.6 or decrease the minimum purchase price of Shares subject to an
Option, as set forth in Section 2.2(a); (ii) materially increase the benefits
accruing to Employees under the Plan; (iii) extend the term of the Plan; (iv)
change the classes of employees to whom Options may be granted or awards paid
under the Plan; (v) provide for the administration of the Plan otherwise than by
a Committee composed entirely of Disinterested Trustees as set forth in Section
1.4(b); or (vi) materially increase the cost of the Plan to the Trust. No
amendment shall adversely affect any right of any holder of an Option already
granted without the holder's written consent.
4.3 Termination of Plan. The Board of Trustees may terminate the Plan at
any time with respect to any Shares for which Options have not already been
granted. Unless terminated earlier by the Board of Trustees, the Plan shall
terminate on September 21, 2004.
4.4 No Right to Continued Employment. Nothing in the Plan or in any Option
granted or incentive award guideline issued pursuant to the Plan shall confer
upon any Employee the right to continue in the employ of the Trust or restrict
the right of the Trust to terminate the employment of any Employee.
4.5 Restrictions on Issuance of Shares; Rights as Shareholders. Should the
Board of Trustees determine that the listing, registration, or qualification of
Shares upon any securities exchange or under any state or federal law or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition to or in connection with the issuance of Shares upon
the exercise of an Option or payment of an annual incentive award under this
Plan, no such Shares shall be issued unless such listing, registration,
qualification, consent, or approval has been effected or obtained free of any
conditions not acceptable to the Board of Trustees.
The certificates representing Shares issued by the Trust in connection with
the exercise of an Option or payment of an annual incentive award under this
Plan may bear a legend describing any restrictions on resale of such Shares
under applicable securities laws, and stop transfer orders with respect to such
certificates may be entered on the Trust's stock transfer records.
A participant shall have no rights as a shareholder of the Trust with
respect to any Shares to be issued in connection with the exercise of an Option
or payment of an annual incentive award under this Plan until the date of
issuance of the certificate for such Shares. No adjustment shall be made for
dividends or other rights for which the record date precedes the date the
certificate is issued.
4.6 Construction. The Plan shall be construed in accordance with the law
of the State of Maryland. With respect to any Options granted under the Plan
that are intended to qualify as incentive stock options as defined in section
422 of the Code, the terms of the Plan and of each incentive stock option
granted pursuant to the Plan shall be construed to give effect to such
intention.
4.7 Satisfaction of Tax Liabilities. Whenever under the Plan Shares are to
be issued upon the exercise of Options or payment of an annual incentive award,
the Trust shall have a right to require the Option holder to remit to the Trust
an amount sufficient to satisfy federal, state, and local withholding tax
requirements, if
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any, before the delivery of any certificate for such Shares. In the Option
holder's or, in the case of an annual incentive award, the participant's
discretion, such requirements shall be satisfied through the retention of Shares
otherwise issuable on the exercise of the Option or payment of the award, or the
delivery of Shares to the Trust by the Option holder or participant, under such
terms as the Committee finds appropriate. The value of a Share used to satisfy
withholding requirements shall be its Fair Market Value on the date the Option
is exercised.
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APPENDIX A
[A] INCENTIVE AWARD GUIDELINES
[B]
The following table sets out the participant's incentive award payout
objectives for [A] as related to the percentage by which the Trust's [A] FFO
exceeds its [C] FFO:
<TABLE>
<CAPTION>
MINIMUM GOAL MAXIMUM
------- ----- -------------
<S> <C> <C> <C>
THE TRUST'S FFO
If the [A] FFO exceeds the [C] FFO by: [D]% [F]% [H]% or more
INCENTIVE AWARD
The payout objective will be:
[B] $[E] $[G] $[I]
</TABLE>
If the Trust's [A] FFO exceeds its [C] FFO by less than the minimum
threshold of [D]%, no incentive award will be made for [A]. If the Trust's [A]
FFO exceeds its [C] FFO by more than [D]% but less than [F]%, or by more than
[F]% but less than [H]%, the participant's incentive award payout objectives
will be determined by proration.
This table sets out payout objectives for the participant's [A] incentive
award. The actual amount of the award, if any, will be determined by the
Committee, subject to the approval of the members of the Board who are
Disinterested Trustees.
CODE:
<TABLE>
<S> <C>
[A] Calendar year to which guidelines apply
[B] Participant's title
[C] Calendar year immediately preceding [A]
[D] Minimum threshold FFO increase from [C] to [A], under which no awards are payable
[E] Award payout objective if [D] achieved
[F] Goal for FFO increase from [C] to [A]
[G] Award payout objective if [F] achieved
[H] Maximum amount of FFO increase from [C] to [A] considered under Plan
[I] Maximum award; payout objective if [H] or more achieved
</TABLE>
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<PAGE> 215
APPENDIX E
PROPOSED AMENDMENT TO THE RESTATED
DECLARATION OF TRUST, AS AMENDED
OF EASTGROUP PROPERTIES
ARTICLE III
THE SHARES
SECTION 1. Shares. The Units into which the beneficial interest in the
Trust are divided shall be known as "Shares." Certificates evidencing ownership
of the Shares shall be in such form and signed on behalf of the Trust in such
manner as the Trustees may from time to time prescribe. The registered holders
of Shares, shown on the register maintained pursuant to Section 4 of this
Article III, shall be known as "Shareholders." Shareholders shall take and hold
their Shares subject to all of the terms and provisions of this Declaration, as
amended from time to time. The Trustees shall be authorized to issue up to
20,000,000 Shares, each having a par value of $1.00 per Share. The Trustees
shall have the power to classify or reclassify any unissued Shares from time to
time by setting or changing the preference, conversion or other rights, voting
powers, restrictions, limitation as to dividends, qualifications, or terms or
conditions of redemption of the Shares. Shares currently issued and outstanding
shall not be subject to call or redemption, except as provided in Section 6 of
this Article III.
<PAGE> 216
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF TRUSTEES AND OFFICERS
EastGroup's Restated Declaration of Trust, as amended, contains a provision
authorizing EastGroup to indemnify and hold harmless, to the fullest extent
permitted by Maryland law, trustees and officers involved in an action, suit or
proceeding.
Section 2-418 of the Maryland General Corporation Law (the "Indemnification
Statute"), the law of the state in which EastGroup is organized, empowers a
trust, subject to certain limitations, to indemnify its officers and trustees
against expenses, including attorneys' fees, judgments, penalties, fines,
settlements and expenses, actually and reasonably incurred by them in any suit
or proceeding to which they are parties unless the act or omission of the
trustee was material to the matter giving rise to the proceeding and was
committed in bad faith, or was the result of active and deliberate dishonesty,
or the trustee received an improper personal benefit or, with respect to a
criminal action or proceeding, the trustee had no reasonable cause to believe
their conduct was unlawful.
EastGroup has entered into an indemnification agreement (the
"Indemnification Agreement") with each of its trustees and officers, and the
Board of Trustees has authorized EastGroup to enter into an Indemnification
Agreement with each of the future trustees and officers of EastGroup. The
Indemnification Statute permits a corporation to indemnify its trustees and
officers. However, the protection that is specifically afforded by the
Indemnification Statute authorizes other arrangements for indemnification of
trustees and officers, including insurance. The Board of Trustees has approved
and the shareholders have ratified the Indemnification Agreement, which is
intended to provide indemnification to the maximum extent allowable by, or not
in violation of, or offensive to, any law of the State of Maryland.
The Indemnification Agreement provides that EastGroup shall indemnify a
trustee or officer who is a party to the agreement (the "Indemnitee") if he or
she was or is a party to or otherwise involved in any proceeding by reason of
the fact that he or she was or is a trustee or officer of EastGroup, or was or
is serving at its request in a certain capacity of another entity, against
losses incurred in connection with the defense or settlement of such proceeding.
This indemnification shall be provided to the fullest extent permitted by
Maryland law. This is similar to the indemnification provided by the
Indemnification Statute except that indemnification is not available to the
Indemnitee who is adjudged liable on the basis that a personal benefit was
improperly received or who pays any amount in settlement of a proceeding without
EastGroup's written consent.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed herewith (or incorporated by reference):
<TABLE>
<S> <C>
(1) Underwriting Agreement (Not Applicable).
(2)(a) Agreement and Plan of Merger between EastGroup and Copley dated as of February 12,
1996, attached to the Joint Proxy Statement/Prospectus as Appendix A. EastGroup
agrees to furnish supplementally to the SEC upon request a copy of any omitted
schedule or exhibit to the Merger Agreement.
(b) EastGroup's Annual Report on Form 10-K for the year ended December 31, 1995
(Commission file No. 1-7094) (incorporated by reference).
(c) Amendment No. 2 to EastGroup's Registration Statement on Form S-2 (No. 33-70574)
filed January 20, 1994 (incorporated by reference).
(3)(a) EastGroup's Restated Declaration of Trust (incorporated by reference to Amendment
No. 1 to EastGroup's Registration Statement on Form S-4 (No. 33-65337) filed
February 27, 1996).
(b) EastGroup's Trustees Regulations (incorporated by reference to Exhibit 3 of
EastGroup's 1980 Annual Report on Form 10-K).
(c) Amendment to EastGroup's Trustees Regulations (incorporated by reference to
Exhibit 3 of EastGroup's 1980 Annual Report on Form 10-K).
</TABLE>
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<PAGE> 217
<TABLE>
<S> <C>
(d) Amendment to EastGroup's Trustees Regulations (incorporated by reference to
Exhibit 3(d) of EastGroup's 1983 Annual Report on Form 10-K).
(5) Opinion of Jaeckle, Fleischmann & Mugel regarding legality of shares being
registered, filed herewith.
(8)(a) Opinion of Jaeckle, Fleischmann & Mugel, as to federal income tax consequences of
the Merger, to be filed by amendment.
(8)(b) Opinion of Hale and Dorr, as to federal income tax consequences of the Merger, to
be filed by amendment.
(10)(a) Amendment and Restatement of the Expense-Sharing Agreement among Congress Street
Properties, Inc., Eastover Corporation, EastGroup Properties and The Parkway
Company dated as of September 1, 1990 (incorporated by reference to Exhibit 10(a)
of EastGroup's 1991 Annual Report on Form 10-K).
(b) First Amendment to Amendment and Restatement of Expense-Sharing Agreement among
Congress Street Properties, Inc., Eastover Corporation, EastGroup Properties and
The Parkway Company dated as of October 1, 1993 (incorporated by reference to
Exhibit 10B of EastGroup's Registration Statement on Form S-2 (No. 33-70574) filed
October 19, 1993).
(c) EastGroup Properties 1989 Incentive Plan (incorporated by reference to Exhibit A
of EastGroup's proxy statement dated April 26, 1991).
(d) EastGroup Properties 1991 Trustees Stock Option Plan, as amended (incorporated by
reference to Exhibit B of EastGroup's proxy statement dated April 26, 1991).
(e) EastGroup Properties 1994 Management Incentive Plan (incorporated by reference to
Exhibit A of EastGroup's proxy statement dated November 11, 1994).
(f) Agreement and Plan of Merger among EastGroup, EastGroup -- LNH Corporation and LNH
REIT, Inc. (incorporated by reference to Appendix A of EastGroup's Registration
Statement on Form S-4 (No. 33-65337) filed December 22, 1995).
(11) Statement regarding computation of earnings per share (incorporated by reference
to Exhibit (11) of EastGroup's 1993 Annual Report on Form 10-K).
(13)(a) EastGroup's Annual Report to Shareholders for the year ended December 31, 1995
(Commission file No. 1-7094) (incorporated by reference).
(b) Copley's Annual Report to Stockholders for the year ended December 31, 1995
(Commission File No. 1-8927) (incorporated by reference).
(21) Subsidiaries of EastGroup (incorporated by reference to Exhibit (22) of Amendment
No. 1 to EastGroup's Registration Statement filed on Form S-4 (No. 33-65337) filed
February 27, 1996).
(23)(a) Consent of Arthur Andersen LLP, filed herewith.
(b) Consent of KPMG Peat Marwick LLP, filed herewith.
(c) Consent of Ernst & Young LLP, filed herewith.
(d) Consent of Morgan Stanley & Co. Incorporated, filed herewith.
(e) Consent of PaineWebber Incorporated, to be filed by amendment.
(f) Consent of Hale and Dorr, to be filed by amendment.
(g) Consent of Jaeckle, Fleischmann & Mugel, contained in Exhibit 5(a) hereto.
(24) Powers of Attorney, filed herewith at pages II-6 and II-7.
(28) Agreement of EastGroup to furnish the SEC with copies of instruments defining the
rights of holders of long-term debt (incorporated by reference to Exhibit 28(e) of
EastGroup's 1986 Annual Report on Form 10-K).
99 (a) Opinion of Morgan Stanley & Co. Incorporated as to the fairness of the transaction
to Copley shareholders, attached as Appendix B to the Joint Proxy
Statement/Prospectus.
(b) Opinion of PaineWebber Incorporated as to the fairness of the transaction to
EastGroup shareholders, attached as Appendix C to the Joint Proxy
Statement/Prospectus.
(c) Copley form of proxy, filed herewith.
(d) EastGroup form of proxy, filed herewith.
</TABLE>
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<PAGE> 218
ITEM 22. UNDERTAKINGS
EastGroup, the undersigned registrant, hereby undertakes:
(1) To file, during any period during which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933, and, is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a trustee, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
this issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
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<PAGE> 219
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Jackson, State of
Mississippi, on March 18, 1996.
EASTGROUP PROPERTIES
By: /s/ DAVID H. HOSTER II
------------------------------------
David H. Hoster II, President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of David H. Hoster II and N. Keith McKey his or her true and lawful
attorney-in-fact and agent, each with full power of substitution and revocation,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each attorney-in-fact and agent, full power and
authority to do and perform each such and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and the foregoing Powers of Attorney have been signed by
the following persons in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- --------------------------------- ----------------
<C> <S> <C>
/s/ LELAND R. SPEED Managing Trustee and Chief March 18, 1996
- ---------------------------------------- Executive Officer (Principal
Leland R. Speed Executive Officer)
/s/ DAVID H. HOSTER II President and Trustee March 18, 1996
- ----------------------------------------
David H. Hoster II
/s/ N. KEITH MCKEY Executive Vice President, Chief March 18, 1996
- ---------------------------------------- Financial Officer and Secretary
N. Keith McKey
/s/ DIANE W. HAYMAN Controller (Principal Accounting March 18, 1996
- ---------------------------------------- Officer)
Diane W. Hayman
/s/ ALEXANDER G. ANAGNOS Trustee March 18, 1996
- ----------------------------------------
Alexander G. Anagnos
/s/ H.C. BAILEY. JR. Trustee March 18, 1996
- ----------------------------------------
H.C. Bailey, Jr.
/s/ HAROLD B. JUDELL Trustee March 18, 1996
- ----------------------------------------
Harold B. Judell
/s/ DAVID M. OSNOS Trustee March 18, 1996
- ----------------------------------------
David M. Osnos
/s/ JOHN N. PALMER Trustee March 18, 1996
- ----------------------------------------
John N. Palmer
</TABLE>
II-4
<PAGE> 1
EXHIBIT 5
JAECKLE, FLEISCHMANN & MUGEL
A T T O R N E Y S A T L A W
FLEET BANK BUILDING TWELVE FOUNTAIN PLAZA BUFFALO, NEW YORK 14202-2292
TEL (716) 856-0600 FAX (716) 856-0432
, 1996
EastGroup Properties
300 One Jackson Place
188 East Capitol Street
Jackson, Mississippi 39201-2195
Ladies and Gentlemen:
We are furnishing this opinion in connection with a Registration Statement
on Form S-4 (the "Registration Statement") filed by EastGroup Properties
("EastGroup"), covering shares of beneficial interest, $1.00 par value per share
(the "Shares"), to be issued by EastGroup in connection with the merger of
EastGroup and Copley Properties, Inc. ("Copley") under the terms of an Agreement
and Plan of Merger dated as of February 12, 1995 between EastGroup and Copley
(the "Merger Agreement").
We have examined the Merger Agreement, EastGroup's Restated Declaration of
Trust, as amended, and Trustees Regulations, as amended, such records of
proceedings of EastGroup as we deemed material, the Registration Statement and
such other documents as we deemed necessary for the purposes of this opinion.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized for issuance by all necessary corporate action and, upon the
issuance thereof in accordance with the terms of the Merger Agreement, the
Shares will be legally issued, fully paid and non-assessable.
Very truly yours,
JAECKLE, FLEISCHMANN & MUGEL
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report to
the Board of Directors of Copley Properties, Inc. dated March 15, 1996, included
in or made a part of the EastGroup Properties Registration Statement on Form S-4
pertaining to EastGroup Properties merger with Copley Properties, Inc.
Arthur Andersen LLP
Boston, Massachusetts
March 15, 1996
<PAGE> 1
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
The Trustees
EastGroup Properties:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Jackson, Mississippi
March 18, 1996
<PAGE> 1
EXHIBIT 23(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 15, 1996, with respect to the consolidated
financial statements of LNH REIT, Inc. included in the Registration Statement
(Form S-4) and related Joint Proxy Statement/Prospectus of EastGroup Properties
for the registration of 2,353,571 shares of its shares of beneficial interest.
/S/ ERNST & YOUNG LLP
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Ernst & Young LLP
Jackson, Mississippi
March 15, 1996
<PAGE> 1
EXHIBIT 23(d)
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
March 18, 1996
Copley Properties, Inc.
399 Boylston Street, 13th Floor
Boston, MA 02116
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of
EastGroup Properties ("EastGroup") on Form S-4, relating to the proposed merger
of Copley Properties, Inc. ("Copley") with EastGroup, of our opinion letter
appearing as Appendix B to the Joint Proxy Statement of Copley and EastGroup and
Prospectus of EastGroup which is a part of the Registration Statement, and to
the references of our firm name therein. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations adopted by the Securities and Exchange Commission thereunder nor
do we admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHRISTOPHER J. NIEHAUS
------------------------------------
Christopher J. Niehaus
Principal
<PAGE> 1
EXHIBIT 99(c)
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF COPLEY PROPERTIES, INC.
SPECIAL MEETING OF SHAREHOLDERS
, 1996
The undersigned hereby appoints Joseph W. O'Connor and Mary L. Lentz, or either
of them, as Proxies, each with full power of substitution and resubstitution,
and hereby authorizes them to represent and to vote as designated below, on
behalf of the undersigned, all of the shares of common stock, $1.00 par value
per share, Copley Properties, Inc. ("Copley") held of record by the undersigned
at the close of business on , 1996 at the special meeting of
shareholders to be held at a.m. on , 1996, at
, and at any adjournment or postponement thereof.
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER dated as of February 12, 1996,
by and between Copley and EastGroup Properties.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, Proxies are authorized to vote upon such other business
as may properly come before the special meeting and any adjournment or
postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE MATTER INDICATED IN 1 ABOVE AND WILL BE VOTED IN THE DISCRETION OF
THE PROXIES NAMED HEREIN WITH RESPECT TO ANY MATTER REFERRED TO IN 2 ABOVE.
Dated: , 1996
PLEASE SIGN EXACTLY AS NAME(S) APPEAR
ON STOCK CERTIFICATE(S). A corporation
is requested to sign its name by its
President or other authorized officer,
with the office held so designated. A
partnership should sign in the
partnership name by an authorized
person. Executors, trustees,
administrators, etc. are requested to
indicate the capacity in which they
are signing. JOINT TENANTS SHOULD BOTH
SIGN.
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--------------------------------------
(Signature(s) of Shareholder(s))
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD
IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE.
<PAGE> 1
EXHIBIT 99(d)
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF EASTGROUP PROPERTIES
ANNUAL MEETING OF SHAREHOLDERS
, 1996
The undersigned hereby appoints David H. Hoster II and N. Keith McKey, or either
of them, as Proxies, each with full power of substitution and resubstitution,
and hereby authorizes them to represent and to vote as designated below, on
behalf of the undersigned, all of the shares of beneficial interest, $1.00 par
value per share, of EastGroup Properties ("EastGroup") held of record by the
undersigned at the close of business on , 1996 at the Annual
Meeting of shareholders to be held at a.m. on , 1996, at
300 One Jackson Place, 188 East Capitol Street, Jackson, Mississippi, and at any
adjournment or postponement thereof.
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER dated as of February 12, 1996,
by and between EastGroup Properties and Copley Properties, Inc.
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF TRUSTEES: Alexander G. Anagnos; H.C. Bailey, Jr.; David H. Hoster
II; Harold B. Judell; David M. Osnos; John N. Palmer; and Leland R. Speed.
/ / FOR / / WITHHOLD AUTHORITY
FOR, except vote withheld from the following nominee(s):
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3. APPROVAL OF THE AMENDMENT TO EASTGROUP PROPERTIES 1994 MANAGEMENT INCENTIVE
PLAN.
/ / FOR / / AGAINST / / ABSTAIN
4. APPROVAL OF THE AMENDMENT TO EASTGROUP PROPERTIES RESTATED DECLARATION OF
TRUST, AS AMENDED, to increase the number of shares of beneficial interest,
$1.00 par value per share of EastGroup Properties authorized for issuance.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, Proxies are authorized to vote upon such other business
as may properly come before the special meeting and any adjournment or
postponement thereof.
<PAGE> 2
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE MATTERS INDICATED IN 1, 2, 3 AND 4 ABOVE AND WILL BE VOTED IN THE
DISCRETION OF THE PROXIES NAMED HEREIN WITH RESPECT TO ANY MATTER REFERRED TO IN
5 ABOVE. NOTE: IN REGARD TO THE MATTER INDICATED IN 2 ABOVE, THE HOLDERS OF THIS
PROXY RESERVE THE RIGHT TO CUMULATE THEIR VOTES AND DISTRIBUTE THEM AMONG THE
NOMINEES AS DIRECTED BY THE BOARD OF TRUSTEES OR, IF NOT SO DIRECTED, IN THEIR
DISCRETION SO AS TO ELECT AS MANY OF THE NOMINEES FOR TRUSTEE NAMED IN THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AS POSSIBLE. YOU ARE ENCOURAGED TO
SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY
BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF TRUSTEES'
RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN
THIS CARD.
Dated: , 1996
PLEASE SIGN EXACTLY AS NAME(S) APPEAR
ON STOCK CERTIFICATE(S). A corporation
is requested to sign its name by its
President or other authorized officer,
with the office held so designated. A
partnership should sign in the
partnership name by an authorized
person. Executors, trustees,
administrators, etc. are requested to
indicate the capacity in which they
are signing. JOINT TENANTS SHOULD BOTH
SIGN.
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--------------------------------------
(Signature(s) of Shareholder(s))
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD
IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE.
